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ISLAMABAD: Warning of another global recession, the World Bank on Tuesday forecast Pakistan’s economic growth to slow further to two per cent during the current year — down by two percentage points from its June 2022 estimate — because of the devastating floods and slowdown in global growth rate.
The World Bank’s latest forecast also points to a “sharp, long-lasting slowdown” with global growth pegged at 1.7pc this year, compared to 3pc it predicted in June, said the bank’s latest Global Economic Prospects report, a flagship publication of the World Bank Group.
It said that global growth was slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine.
In the report, the Washington-based lending agency said Pakistan’s economic output was not only declining itself but also bringing down the regional growth rate. It forecast Pakistan’s GDP growth rate to improve to 3.2pc in 2024, but that too would be lower than the earlier estimate of 4.2pc.
“Policy uncertainty further complicates the economic outlook” of Pakistan, in addition to flood damages and the resultant increase in poverty, the bank said, explaining 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.
About one-third of the country’s land area was affected, damaging infrastructure, and directly affecting about 15pc 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 23pc of GDP and 37pc of employment — disrupting the current and upcoming planting seasons and pushing 5.8 million at 9m people into poverty.
Pakistan, with low foreign exchange reserves and rising sovereign risk, saw its currency depreciate by 14pc between June and December and its country risk premium rise by 15 percentage points over the same period.
Pakistan’s consumer price inflation reached 24.5pc in December on an annual basis, recently coming off its highest rate since the 1970s, the World Bank said.
The South Asian region is anticipated to grow by 5.5pc and 5.8pc in 2023 and 2024, respectively — slightly 0.3pc to 0.7pc lower than earlier estimates — mainly because of supporting 6.6pc and 6.1pc GDP growth in India. “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,” the report said.
In the region excluding India, growth in 2023 and 2024 — at 3.6pc and 4.6pc, respectively — is expected to underperform its average pre-pandemic rate. This is mainly due to weak growth in Pakistan, which is projected at 2pc in FY2022-23, half the pace that was anticipated in June last year.
Pakistan faces challenging economic conditions, including the repercussions of the recent flooding and continued policy and political uncertainty. As the country implements policy measures to stabilise macroeconomic conditions, inflationary pressures dissipate, and rebuilding begins following the floods, and growth is expected to pick up to 3.2pc in FY2023-24 — still below previous projections.
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, could have unintended consequences and exacerbate increases in global food prices. Afghanistan, Bangladesh, India, and Pakistan implemented export restrictions on food in 2022, including rice, wheat and sugar.
The recent floods in Pakistan are estimated to have caused damage equivalent to about 4.8pc of GDP. Extreme weather events can exacerbate food deprivation, cut the region off essential supplies, destroy infrastructure, and directly impede agricultural production.
In some economies, the World Bank report noted, the deterioration in economic conditions has led to a substantial rise in poverty (Afghanistan, Pakistan, Sri Lanka). 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.
Published in Dawn, January 11th, 2023
