World Bank and ADB trim Pakistan's growth forecast to just 0.4%
Four million more people likely to fall below the lower middle income poverty line due to low growth and high inflation
The World
Bank has projected Pakistan’s economic growth to be just 0.4% this year. More than four million people are likely to fall
below the lower middle-income poverty line amid low growth and high inflation.
Meanwhile,
the Asian Development Bank (ADB) has forecast Pakistan’s economic growth
plunging to 0.6% from 6% last year owing to the prevailing political crisis,
flood-oriented economic losses, foreign exchange challenges and tighter
macroeconomic policies at home and a challenging external environment.
The World
Bank in its Pakistan Development Update (PDU) 2023 has said the following. “In
the absence of public transfers that cover income losses or mitigate the impact
of higher prices, poverty measured at the lower middle-income poverty line
($3.65 per day 2017 PPP per capita) is projected to increase to 37.2% in FY23,
pushing an additional 3.9 million people into poverty as compared to FY22. The
depth and severity of poverty has also increased, reflecting the overlapping
impacts of multiple shocks and households’ lack of savings to mitigate
short-term impacts”.
The World
Bank’s GDP growth prediction at 0.4% is down from its previous growth
estimate of 2% in January. The World Bank’s Country Director for Pakistan Najy
Benhassine said it was not easy to write a report about Pakistan in such a
critical time when so many things were happening amid super focus on IMF
programme, exchange rate volatility and floods and so on but all this
highlighted usual structural issues were behind the fresh numbers.
“The
resolution of Pakistan’s economic crisis requires a commitment to sustained
macro-fiscal and structural reforms,” said Najy Benhassine, adding that this
was needed both to unlock fresh financing and avoid a balance of payments
crisis and lay the foundation for a recovery of private investor confidence and
higher growth over the medium term.
The Update
said the poor households had been negatively impacted by a number of
developments including the effects of flooding and import restrictions on
production and labour incomes in economic sectors that employ a large number of
the poor, including agriculture and the textile industry.
This also
included the high food inflation, which reduced the real purchasing power of
all households, with particularly severe impacts on poorer households that lack
savings to preserve consumption amid higher prices. Also, the households had
been impacted by a potential decline in international remittances.
He said the
economic activity remained subdued in the first half of 2022-23 as agriculture
was impacted by flooding and difficulties in obtaining critical inputs while
Large-Scale Manufacturing (LSM) contracted by 3.7% due to policy tightening and
import restrictions. As a result, rising costs and declining business and
consumer confidence have impacted the services sector amid inflation in the
first half of the year rising to a multi-decade high.
The World
Bank argued that all estimates were strongly linked to the IMF programme that
Pakistan should implement and sustain macroeconomic and structural reforms
because the country faced multiple downside risks due to rising public debt
levels and depleting international reserves. This would secure much-needed external
refinancing and new disbursements to restore macro-stability and confidence.
The report
said the slower GDP growth reflected subdued private sector activity amid
deteriorating confidence, import controls, belated fiscal tightening, and the
impacts of the unprecedented floods of summer 2022. Over FY23, Pakistan faced
devastating floods and increasing global commodity prices following Russia’s
invasion of Ukraine.
In its
flagship annual Asian Development Outlook (ADO) April 2023, the Manila-based
lending agency called for the earliest revival of the International Monetary
Fund (IMF) programme to buttress falling foreign exchange reserves, address the
balance of payment challenges and unlock foreign inflows from other sources.
“The government must also identify financing sources to fill the external
financing gap”.
The report
said the risks to the outlook and IMF programme implementation are high,
tilting to the downside because of challenges both domestic and external.
“Macroeconomic conditions have deteriorated seriously in the current fiscal
year, and Pakistan is at dire risk because international reserves have reached
critical lows”, it said, adding the economic outlook appears weak, with
substantial risks from slower global growth or any further increases in world
energy and food prices caused by the ongoing Russian invasion of Ukraine.
With $15 billion flood damages in addition to economic losses of $15.2 billion requiring recovery and
rehabilitation cost of $16.5 billion, the likelihood of such devastating shocks
continue to rise and so do their impacts on Pakistani people and their livelihoods
and on ecosystems and the economy, worsening poverty and food insecurity and
risking conflict over water and other resources.
It said the
high inflation, estimated at 27.5% this year and 15% next fiscal year will
affect purchasing power and thus restrain domestic demand.
Khalid Bhatti
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