Warning about recession, the World Bank has predicted Pakistan’s economic growth to decline by two per cent during 2023. It means, it will be down by another two per cent points from its June 2022 estimate. World Bank’s Tuesday development is a result of devastating floods in Pakistan and a slowdown in global growth rate.
According to the World Bank’s latest Global Economic Prospects report, a flagship publication of the World Bank Group, the organization has forecasted a significant and prolonged decline in global growth, which it now estimates to be at 1.7% in 2021, as opposed to the 3% that it had predicted in June.
The World Bank’s report cited a number of factors contributing to the sharp slowdown in global growth, including elevated inflation, increased interest rates, decreased investment, and disruptions caused by Russia’s invasion of Ukraine. It also mentions that Pakistan’s economic output is not only struggling but also dragging down regional growth. The bank forecasted that Pakistan’s GDP growth rate will improve to 3.2% in 2024, which is also lower than the earlier estimate of 4.2%.
The World Bank report also highlighted that “Policy uncertainty further complicates the economic outlook” of Pakistan, in addition to the damage caused by floods and the resulting increase in poverty. It explained that an already precarious economic situation in Pakistan, with low foreign exchange reserves and large fiscal and current account deficits, was exacerbated in August last year by severe flooding, which cost many lives.
It said about one-third of the country’s land area was affected, damaging infrastructure, and directly affecting about 15% of the population. “Recovery and reconstruction needs are expected to be 1.6 times the FY2022-23 national development budget,” it said, adding that the flooding is likely to seriously damage agricultural production which accounts for 23% of GDP and 37% of employment, disrupting the current and upcoming planting seasons and pushing 5.8 million to 9 million people into poverty.
The World Bank’s report also highlighted that Pakistan, which already has low foreign exchange reserves and rising sovereign risk, saw its currency depreciate by 14% between June and December 2020, and its country risk premium rise by 15 percentage points over the same period. Consumer price inflation in Pakistan reached 24.5% on an annual basis in December, recently coming off its highest rate since the 1970s.
The South Asian region is anticipated to grow by 5.5% and 5.8% in 2023 and 2024, respectively — slightly 0.3% to 0.7% lower than earlier estimates mainly due to supporting 6.6% and 6.1% GDP growth in India. The report said that “This pace reflects still robust growth in India, Maldives, and Nepal, offsetting the effects of the floods in Pakistan and the economic and political crises in Afghanistan and Sri Lanka. The deteriorating global environment, however, will weigh on investment in the region.”
In the region excluding India, growth in 2023 and 2024 at 3.6% and 4.6% respectively is expected to underperform its average pre-pandemic rate mainly due to weak growth in Pakistan, which is projected at 2% in FY2022-23, half the pace that was anticipated in June last year.
The report also mention that food prices have risen rapidly in South Asia, especially in Pakistan and Sri Lanka, increasing the incidence of food insecurity in the region. Export bans on food also increasingly prevalent in the region, which could have unintended consequences and exacerbate increases in global food prices. The report also warns that extreme weather events like recent floods in Pakistan, could exacerbate food deprivation, cut the region off essential supplies, destroy infrastructure, and directly impede agricultural production.
It also notes that in some economies, the deterioration in economic conditions has led to a substantial rise in poverty and many households are consuming less nutritious food, and rolling electricity blackouts have become common as fuel has been rationed. The combination of limited foreign exchange buffers and widening external current account deficits encouraged several countries (including Bangladesh and Pakistan) to approach the International Monetary Fund to help bolster foreign exchange reserves and mitigate external financing pressures. In parallel, governments have tightened fiscal policies and, in some cases, imposed import controls and food export bans.
