ISLAMABAD: The World Bank has projected Pakistan’s GDP growth rate at 2% for 2021-2022, saying poverty is expected to remain high. The Bank in its latest “Pakistan-Macro Poverty Outlook” report said that the country’s economy was severely affected by the COVID-19 shock during fiscal year 2020, leading to an increase in poverty. With the lifting of containment measures, the economy is showing signs of a fragile recovery. Growth should gradually strengthen but remain moderate in the medium term. Budget deficit and debt levels are expected to remain high but gradually improve. Risks to the outlook include further waves of Covid-19 infections and delays in implementing critical structural reforms.
Pakistan’s output growth is expected to pick up gradually over the medium term, averaging 2.2 percent in FY 2021-23, mainly driven by contributions from private consumption. However, sectors that employ the poorest, such as agriculture, are expected to remain weak and, therefore, poverty is expected to remain high.
The basic outlook is predicated on the absence of significant outbreaks of infection that would require more extensive lockdowns. The current account deficit (P / A) is expected to narrow to 0.8% of GDP in FY2021, as a larger trade deficit is more than offset by larger remittances. However, it is expected to increase in the medium term. Exports are expected to increase from FY2022, as external conditions become more favorable and tariff reforms gain ground, but imports are also expected to increase alongside stronger domestic activity and higher oil prices. high. While fiscal consolidation efforts are expected to resume, the deficit is expected to remain high at 8.3 percent of GDP in FY2021, in part due to the settlement of arrears in the electricity sector. As critical reforms aimed at raising revenues accelerate and efforts to rationalize spending resume, the budget deficit is expected to gradually narrow over the medium term. Nonetheless, public debt will remain high over the medium term, as will Pakistan’s exposure to debt shocks.
The report further notes that the Pakistani economy has grown slowly over the past two decades. Annual per capita growth has averaged only 2 percent, less than half of the South Asian average, in part due to inconsistent macroeconomic policies and under-dependence on investment and exports to stimulate economic growth. Short periods of rapid growth fueled by consumption often led to large current account and budget deficits which ultimately necessitated policy tightening, resulting in recurrent boom-bust cycles.
At the start of the 2020 fiscal year, which runs from July 2019 to June 2020, following an episode of this type of external and fiscal imbalance, the country entered into an extended 39-month IMF financing facility. . Associated adjustment measures, including fiscal consolidation, helped reduce imbalances during the year and improve macroeconomic stability. However, containment measures adopted in response to the COVID-19 pandemic led to a collapse in economic activity in the last quarter of fiscal 2020. As a result, GDP growth is estimated to have contracted. by 1.5% in FY20. Half of the labor force suffered job or income losses, with informal and low-skilled workers in basic jobs facing the sharpest contraction in employment. employment. As a result, the incidence of poverty is estimated to have increased in FY20 from 4.4 to 5.4 percent, using the international poverty line of 2011 PPP $ 1.90 per day, with more two million people falling below this poverty line. In addition, 40 percent of households suffered from moderate to severe food insecurity. The government therefore focused on mitigating the negative socio-economic effects of the pandemic, and the IMF program was temporarily suspended.
The main risks to the outlook include the possibility of new waves of infections, the emergence of new vaccine-resistant strains and setbacks in mass vaccinations. In addition, further delays in implementing key structural reforms could lead to further fiscal and macroeconomic imbalances.
Copyright Business Recorder, 2021