The GDP growth of Pakistani economy to remain low at 0.5% in 2021 says World Bank

 World Bank has predicted -1.5 % growth in the GDP in 2020

Contrary to PTI government's expectations, The World Bank has predicted the GDP growth of Pakistani economy to remain low at 0.5% in 2021. Real GDP growth (at factor cost) is estimated to have declined from 1.9 percent in financial year 2019 to -1.5 percent in financial year 2020 (the government had estimated that the GDP growth stood at -0.4 percent for FY 2020) the first contraction in decades.

Pakistan's economy experienced first negative growth in its GDP since 1952. This figure alone is enough to explain the seriousness of the economic crisis we are going through.Given anemic growth projections in the near term, poverty is expected to worsen. 

Vulnerable households rely heavily on jobs in the services sector, and the projected weak services growth is likely to be insufficient to reverse the higher poverty rates precipitated by the pandemic says the World Bank.

 It is not a good news for the PTI government as it facing a possible protest movement from opposition parties. The economic managers of PTI government is giving the impression that worst for the Pakistani economy is over and there will be growth next year. But World Bank prediction is contradicting the positive sentiments expressed by PM Imran Khan and ministers. 

The World Bank says that there are considerable downside risks to the outlook of Pakistan’s economy. The most significant being a possible resurgence of the COVID-19 infection, triggering a new wave of global and/or domestic lockdowns and further delaying the implementation of critical structural reforms.

In Pakistan, economic growth is projected to remain below potential, at 0.5 percent for financial year 2021 compared to over 4 percent annual average in the three years prior to  financial year 2018-2019. This projection, which is highly uncertain, is predicated on the absence of significant infection flare ups or subsequent waves that would require further widespread lockdowns.

Pakistan’s economy has been severely affected by measures taken to contain the COVID-19 pandemic. Economic activity contracted and poverty is expected to have risen in financial year 2020, as monetary and fiscal policy tightening. 

Growth is expected to gradually recover but remain muted, given heightened uncertainty and the resumption of demand compression measures. A possible resurgence of the infection, widespread crop damage due to locusts and heavy monsoon rains pose major risks to the outlook.

Regarding outlook of the economy, the WB says that while domestic economic activity is expected to recover, as lockdown measures are lifted, with a gradual decline in active COVID-19 cases, Pakistan’s near-term economic prospects are subdued.

Significant uncertainty over the evolution of the pandemic and availability of a vaccine, demand compression measures to curb imbalances, along with unfavorable external conditions, all weigh on the outlook.

Economic growth is projected to remain below potential, averaging 1.3 percent for financial year 2021-22. The current account deficit is expected to widen to an average of 1.5 percent of GDP over financial year 2021-22, with imports and exports gradually picking up as domestic demand and global conditions improve.

The fiscal deficit is projected to narrow to 7.4 percent in FY22, with the resumption of fiscal consolidation and stronger revenues driven by recovering economic activity and critical structural reforms.

Expenditures will remain substantial due to sizable interest payments, a rising salary and pension bill, and absorption of energy SOE guaranteed debt by the government.

Given anemic growth projections in the near term, poverty is expected to worsen. Vulnerable households rely heavily on jobs in the services sector, and the projected weak services growth is likely to be insufficient to reverse the higher poverty rates precipitated by the pandemic says the World Bank. 

                                                             Khalid Bhatti