Pakistan Growth Reverses Downwards from 3.9 to 3.4%
October 08, 2021
The World Bank said that Pakistan’s economic growth rate fell to 3.4 percent this fiscal year from 3.9 percent the previous fiscal year, highlighting some downside risks. However, it was noted that if the government implemented key structural reforms, the growth rate could reach 4% in the next fiscal year (2023).Growth in Pakistan is expected to ease slightly to 3.4 percent in fiscal year 2021-22, as fiscal and monetary measures are expected to unwind, the World Bank said in its twice-yearly report South Asia Economic Focus Shifting Gears: Digitization and Services-Led Development, which was released ahead of the Bank’s and the International Monetary Fund’s annual meetings.
Potential IMF programme delays, high demand-side pressures, negative spillovers from the evolving situation in Afghanistan, and more severe and contagious Covid-19 waves, it said, all posed downside risks to the outlook. The South Asia Region is expected to grow by 7.1 percent in 2021 and 2022, according to the report. South Asia’s average annual growth rate is expected to be 3.4 percent from 2020 to 2023, down three percentage points from the four years prior to the pandemic.
The Indian economy is expected to grow by 8.3% in fiscal year 2021-22, due to improved public investment and incentives to boost manufacturing, according to the bank. Bangladesh’s growth rates will pick up to 6.4 percent in fiscal year 2021-22 as exports and consumption continue to improve.
As tourism numbers recover, the Maldives’ GDP is expected to grow by 22.3 percent in 2021, and 11 and 12 percent in 2022 and 2023, respectively. In 2022 and 2023, Sri Lanka’s growth is expected to be 2.1 and 2.2 percent, respectively, while Bhutan’s growth is expected to be 3.6 and 4.3 percent. Nepal is expected to grow at a rate of 3.9 percent in 2022 and 4.7 percent in 2023.
According to the report, Pakistan and Afghanistan have lower vaccination capacity and are also hampered on the demand side by widespread vaccine apprehension. According to surveys, 35% of Pakistanis and 30% of Afghans refuse to be vaccinated. As the government refocuses on mitigating emerging external pressures and managing long-standing fiscal challenges, the World Bank expects fiscal and monetary tightening to resume in Pakistan in FY22, in line with a 25-basis-point policy rate hike in September 2021.
It stated that growth would be contingent on the implementation of key structural reforms, particularly those aimed at maintaining macroeconomic stability, increasing competitiveness, and improving the energy sector’s financial viability. With expected domestic energy tariff hikes and higher oil and commodity prices, inflation is expected to pick up in FY22 before leveling off in FY23. Poverty is expected to continue to decline, with 4 percent of the population living in poverty by FY23. With higher economic growth and oil prices, the current account deficit is expected to widen to 2.5 percent of GDP in FY23.
After tapering in FY22, exports are expected to rebound strongly as tariff reform measures gain traction, boosting export competitiveness. Furthermore, after benefiting from a Covid-19-induced transition to formal channels in FY21, the growth of official remittance inflows is expected to moderate. Despite efforts to reduce the deficit, the deficit is expected to remain high in FY22, at 7% of GDP, and widen to 7.1 percent in FY23 due to pre-election spending. The implementation of critical revenue-enhancing reforms, particularly the harmonization of the General Sales Tax, will help to reduce the fiscal deficit over time.
According to the World Bank, pandemics have revealed new roles for digital remote services, while new inventions have opened up new opportunities for service supply. Furthermore, digital technologies enable services to increase the productivity of other sectors, such as manufacturing, by making them more tradable. For businesses, digital platforms open up new markets. According to the report, the pandemic has had a significant economic impact on South Asia. Much will depend on the rate of vaccination, the potential emergence of new Covid variants, and any major slowdown in global growth in the future.
According to the World Bank, the Covid-19 has left long-term scars on the region’s economy, with ramifications that could last well into recovery. Many countries saw lower investment flows, supply chain disruptions, and human capital accumulation setbacks, as well as significant debt increases. In 2021, the pandemic is expected to have caused 48 to 59 million people in South Asia to become or remain poor.