World Bank Forecast Pakistan's Economic Growth To Further 'Slow' To 2% In FY 2022-23
The World Bank’s Global Economic Prospects report on Tuesday also pointed to a 'sharp, long-lasting slowdown” with the global growth pegged at 1.7% this year, compared to 3% it predicted in June.
The World Bank has forecast Pakistan's economic growth to slow further to two per cent during the current year — down by two percentage points from its June 2022 estimates — because of the devastating floods and slowdown in the global growth rate, a media report said on Wednesday.
The World Bank’s Global Economic Prospects report on Tuesday also pointed to a 'sharp, long-lasting slowdown” with the global growth pegged at 1.7% this year, compared to 3% it predicted in June, Dawn newspaper reported.
The report, issued by a flagship publication of the World Bank Group, said that global growth was slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia's war in Ukraine.
The Washington-based lending agency also said Pakistan’s economic output was not only declining itself but also bringing down the regional growth rate.
It forecast Pakistan’s GDP growth rate to improve to 3.2% in 2024, but that too would be lower than the earlier estimate of 4.2%.
'Policy uncertainty further complicates the economic outlook' of Pakistan, in addition to flood damages and the resultant increase in poverty, the bank said, explaining that an already precarious economic situation in the cash-strapped country, with low foreign exchange reserves and large fiscal as well as current account deficits, was exacerbated in August last by severe flooding, which cost more than 1,100 lives.
About one-third of the country’s land area was affected, damaging infrastructure and directly affecting about 15 per cent of the population.
'Recovery and reconstruction needs are expected to be 1.6 times the FY2022-23 national development budget,” it said, adding that the flooding is likely to seriously damage agricultural production — which accounts for 23 per cent of GDP and 37 per cent of employment — disrupting the current and upcoming planting seasons and pushing more than 5.8 million into poverty.
Pakistan, with low foreign exchange reserves and rising sovereign risk, saw its currency depreciate by 14 per cent between June and December 2022, and its country risk premium rise by 15 percentage points over the same period.
Pakistan’s consumer price inflation reached 24.5 per cent in December on an annual basis, recently coming off its highest rate since the 1970s, the World Bank said.
The South Asian region is anticipated to grow by 5.5 per cent and 5.8 per cent in 2023 and 2024 respectively — slightly 0.3 per cent to 0.7 per cent lower than earlier estimates — mainly because of supporting 6.6 per cent and 6.1 per cent GDP growth in India.
'This pace reflects still robust growth in India, Maldives, and Nepal, offsetting the effects of the floods in Pakistan and the economic and political crises in Afghanistan and Sri Lanka. The deteriorating global environment, however, will weigh on investment in the region,” the report said.
In the region, excluding India, growth in 2023 and 2024 - at 3.6 per cent and 4.6 per cent, respectively - is expected to underperform its average pre-pandemic rate.
This is mainly due to weak growth in Pakistan, which is projected at 2 per cent in FY2022-23, half the pace that was anticipated in June last year.
Pakistan faces challenging economic conditions, including the repercussions of the recent flooding and continued policy and political uncertainty.
As the country implements policy measures to stabilise macroeconomic conditions, inflationary pressures dissipate, and rebuilding begins following the floods and growth is expected to pick up to 3.2 per cent in FY 2023-24 — still below previous projections.
Food prices have risen rapidly in South Asia, especially in Pakistan and Sri Lanka, increasing the risk of food insecurity in the region.
Export bans on food, also increasingly prevalent, could have unintended consequences and exacerbate the increase in global food prices.
Afghanistan, Bangladesh, India, and Pakistan implemented export restrictions on food in 2022, including rice, wheat, and sugar.
The recent floods in Pakistan are estimated to have caused damage equivalent to about 4.8 per cent of the GDP.
Extreme weather events can exacerbate food deprivation, cut the region off essential supplies, destroy infrastructure, and directly impede agricultural production.
In some economies, the World Bank report noted, the deterioration in economic conditions has led to a substantial rise in poverty (Afghanistan, Pakistan, Sri Lanka).
Many households are consuming less nutritious food, and rolling electricity blackouts have become common as fuel has been rationed.
The combination of limited foreign exchange buffers and widening external current account deficits encouraged several countries (including Bangladesh and Pakistan) to approach the International Monetary Fund to help bolster foreign exchange reserves and mitigate external financing pressures.
In parallel, governments have tightened fiscal policies and, in some cases, imposed import controls and food export bans, according to Dawn.