Pakistan’s growth forecast reduced by World Bank to 0.4 percent

The World Bank has sharply reduced Pakistan’s current growth forecast from two to 0.4 per cent, attributing the change to tighter economic conditions and limited fiscal space, local daily Daily Times reported.

Increasing interest rates and uncertainty in financial markets have further enhanced pressure on the cash-strapped economy, with future economic prospects heavily reliant on structural reform. Inflation in Pakistan is at a 48-year high, affecting local businesses and increasing the cost of living. Foreign currency reserves are barely enough to manage a month of imports.

Flood damages worth billions continue to sting, with many people living without compensation for the losses they incurred. As per the news report, bond spreads are widening while the International Monetary Fund deliberates whether to resume aid.

According to World Bank’s projections, Pakistan will realise its deal with the IMF. However, a USD 6.5 billion loan falls short of what is needed in Pakistan to replenish its depleted coffers, Daily Times reported. Moreover, repeated delays in the IMF bailout program in addition to political and economic turmoil are likely to push Pakistan towards a recession.

In order to seal the IMF’s bailout package, Pakistani authorities have already increased taxes, reduced energy subsidies and raised interest rates to a 25-year high to tamp down prices. However, the larger structural issues continue to daunt Pakistan, as per the news report.

The inability of successive Pakistani governments to meet IMF conditions has made the global lender reluctant to provide additional funds. Pakistan will unlikely make a full recovery without foreign intervention, as per the Daily Times report.

Meanwhile, the World Bank has said that various economic shocks have resulted in nearly four million Pakistanis getting pushed into poverty this fiscal year, The Express Tribune reported. The World Bank also called on Pakistan to immediately arrange for new foreign loans to avoid a “public debt crisis.”

The World Bank, in its flagship report ‘Pakistan Development Update’, warned Pakistan regarding serious dangers to its economic and debt viability while predicting almost flat economic growth, with an average inflation rate of 29.5 per cent for the current fiscal year, as per the news report.

The average inflation rate in Pakistan for FY2023 is projected at 29.5 per cent and at 18.5 per cent for next year, which shows that the annual inflation rate will be much higher, according to The Express Tribune report.

The World Bank has said that “poverty is projected to increase to 37.2 per cent in FY23, pushing an additional 3.9 million people into poverty as compared to last fiscal year” in Pakistan in the absence of public transfers that cover losses or mitigate the effect of higher prices.

According to the World Bank, implementing macroeconomic and structural reforms agreed upon under the IMF programme and obtaining external refinancing is important for restoring macro-stability, and confidence and averting a “public debt crisis.”