By Khaleeq Kiani
Published in DAWN on October 08, 2021
ISLAMABAD: Highlighting certain downside risks, the World Bank on Thursday said Pakistan’s economic growth rate slightly came down to 3.4 per cent during the current fiscal year against 3.9pc of last fiscal year. However, it pointed out, the growth rate can hit the 4pc mark in the next fiscal year (2023) if the government implemented key structural reforms.
“In Pakistan, growth is expected to ease a little to 3.4pc in fiscal year 2021-22, as fiscal and monetary measures are expected to unwind,” said the World Bank in its twice-yearly report South Asia Economic Focus Shifting Gears: Digitisation and Services-Led Development released ahead of annual meetings of the Bank and the International Monetary Fund (IMF).
It said potential delays in the IMF programme, high demand-side pressures, potential negative spillovers from the evolving situation in Afghanistan and more severe and contagious Covid-19 waves posed downside risks to the outlook.
The report projected the South Asia Region to grow by 7.1pc in 2021 and 2022. South Asia’s average annual growth is forecast to be 3.4pc over 2020-23, which is three percentage points less than it was in the four years preceding the pandemic.
Says the Covid-19 pandemic has left long-term scars on the region’s economy
The bank has projected the Indian economy to grow by 8.3pc in the fiscal year 2021-22, aided by an increase in public investment and incentives to boost manufacturing. In Bangladesh, continued recovery in exports and consumption will help growth rates pick up to 6.4pc in fiscal year 2021-22.
In Maldives, GDP is projected to grow by 22.3pc in 2021 and 11 and 12pc in 2022 and 2023 respectively, as tourism numbers recover. The growth in Sri Lanka is projected at 2.1 and 2.2pc in 2022 and 2023 while Bhutan would witness 3.6pc and 4.3pc growth in the next two years. Nepal is projected to grow 3.9pc in 2022 and 4.7pc in 2023.
The report said Pakistan and Afghanistan had lower capacity vaccination capacity and were also constrained on the demand side by widespread vaccine hesitancy. Surveys indicate that 35pc of Pakistanis and 30pc of Afghans are not willing to be vaccinated.
The World Bank expected the fiscal and monetary tightening to resume in Pakistan in FY22 in line with 25-basis point policy rate hike in September 2021, as the government refocuses on mitigating emerging external pressures and managing long-standing fiscal challenges. It said the growth would depend on implementation of key structural reforms, particularly those aimed at sustaining macroeconomic stability, increasing competitiveness and improving financial viability of the energy sector.
Inflation is projected to edge up in FY22 with expected domestic energy tariff hikes and higher oil and commodity prices before moderating in FY23. Poverty is expected to continue declining, reaching 4pc by FY23. The current account deficit is projected to widen to 2.5pc of GDP in FY23 as imports expand with higher economic growth and oil prices.
Exports are also expected to grow strongly after initially tapering in FY22, as tariff reform measures gain traction supporting export competitiveness. In addition, the growth of official remittance inflows is expected to moderate after benefiting from a Covid-19 induced transition to formal channels in FY21. Despite fiscal consolidation efforts, the deficit is projected to remain high at 7pc of GDP in FY22 and widen to 7.1pc in FY23 due to pre-election spending.
Implementation of critical revenue-enhancing reforms, particularly the General Sales Tax harmonisation, will support a narrowing of the fiscal deficit over time. Public debt will remain elevated in the medium-term, as will Pakistan’s exposure to debt-related shocks. This outlook assumes that the IMF-EFF programme will remain on-track.
The World Bank noted that pandemic had uncovered new roles for digital remote services, while new inventions have created growth opportunities for the supply of services. Moreover, digital technologies make services more tradable and enable services to increase productivity of other sectors including manufacturing. Digital platforms open up new markets for firms.
It said the pandemic has had profound impacts on South Asia’s economy. Going forward, much will depend on the speed of vaccination, the possible emergence of new Covid variants, as well as any major slowdown in the momentum of global growth. While short-term recovery is important, policymakers should also seize the opportunity to address deep-rooted challenges and pursue a development path that is green, resilient and inclusive, it advised.
The World Bank said the Covid-19 had left long-term scars on the region’s economy, the impacts of which can last well into the recovery. Many countries experienced lower investment flows, disruptions in supply chains, and setbacks to human capital accumulation, as well as substantial increases in debt levels. The pandemic is estimated to have caused 48 to 59 million people to become or remain poor in 2021 in South Asia.