Economic growth accelerated in 2017 driven by better energy supply, robust investment from the China-Pakistan economic corridor, higher credit growth and greater optimism amongst business and consumers. Better economic prospects have lifted the demand for imports and the current account deficit. But there has not been a commensurate adjustment in the exchange rate, with reserves used to fund the deficits. The overvalued exchange rate is sowing the seeds for greater external imbalances, which could force Pakistan back into an IMF program. The upcoming election will likely result in higher government spending, which could further exacerbate economic imbalances.
Pakistan’s favourable population dynamics will buttress the long term outlook, but this will require adequate infrastructure, stable governance and productive investments to create employment opportunities.