According to the latest Global Economic Prospects report released by the World Bank, Pakistan’s economy is projected to grow by two percent in the next fiscal year. This is lower than the 3.5 percent target set by the National Economic Council.
The report attributes the sluggish growth to the lasting effects of the August 2022 floods, policy uncertainty, and limited foreign exchange resources.
Industrial production in Pakistan contracted by approximately 25 percent in the year leading up to March 2023.
Furthermore, the country’s foreign exchange reserves have been dwindling, and remittances have remained stagnant.
As a result, the government has allowed the Pakistani rupee to depreciate by 20 percent since the beginning of the year, leading to a sharp increase in consumer price inflation, reaching 38 percent in May.
The report highlights that consumer price inflation remains above target in most economies, with Pakistan and Sri Lanka experiencing particularly high inflation. Limited foreign exchange reserves in some economies restrict access to imported intermediate goods for production.
The World Bank recommends that Pakistan’s central bank further increase policy rates from the current peak of 21 percent to address negative real interest rates.
The report acknowledges that poverty has been increasing in countries facing severe economic pressures, including Pakistan, Sri Lanka, and Afghanistan. However, it predicts that the region will resume its downward trend in poverty, although at a slower pace due to high inflation, slow employment recovery, and the withdrawal of pandemic-related food support.
Import restrictions imposed by several South Asian economies have been relaxed as external imbalances improve and exchange rate pressures ease.
The report notes that some economies in South Asia, such as Afghanistan, Pakistan, and Sri Lanka, continue to face deep crises that undermine growth.
In Pakistan, the effects of last year’s floods, coupled with social tensions, high inflation, and policy uncertainty, are estimated to have limited growth to 0.4 percent this fiscal year, a downward revision from previous estimates.?