Pakistan’s Economy to slow down says World Bank

The World Bank on Pakistan's Economy

The World Bank on Pakistan's Economy

The Work Bank has said that Pakistan’s GDP growth is expected to fell and reach 4.8 percent during the financial year 2019 due to tight fiscal and monetary policies.

According to World Bank, the overall South Asian growth is surpassing 6.9 percent in 2018 which is projected to accelerate to 7.1 percent during 2019, despite South Asia is the world’s fastest-growing region Pakistan’s economy is to slow down in 2019.

The bank has observed the uneven performance growth in different countries in the region because of the disturbing external environment, trade wars, capital outflows, and economic & fiscal policies.

Despite having accelerated growth, the South Asian fiscal deficit is 4.4 percent of its GDP which is the second largest globally.

The Washington based lender has also observed deteriorating remittances in Pakistan, the remittances actually stayed the same as compared to India and Bangladesh with 28 percent and 18 percent rise, which in order words are deteriorating technically.

Pakistan’s economy grew by 5.8 percent during the financial year 2018 despite the tough macroeconomic situation. Pakistan’s fiscal deficit has increased due to turbulent fiscal policies; including grants the fiscal deficit has reached 6.5 percent of GDP.

Revenue growth stayed limited and recurrent spending increased by both the Federal and provincial governments. Pakistan’s public debt has reached 73.5 percent of GDP by the end of June 2018, said the World Bank.

Pakistan is expected to recover in FY20 and reach 5.2 percent as macroeconomic situation improve, said the World Bank

However, inflation is expected to rise to 8 percent in FY2019 and it will remain high in FY2020 due to exchange rates and a moderate increase in oil prices internationally.

Industrial production in Pakistan registered a 4.5 percent growth, with South Asia’s industrial growth recorded at 5.4 percent, which was slightly lower than the previous quarter, said the report.

“Despite a modest rebound subsequently, there was a 10 percent depreciation compared to the beginning of the year and a 14 percent depreciation compared to one year before,” said WB.

Moreover, the report highlighted Pakistan’s recent nominal exchange rate depreciations have led to a depreciation of the real effective exchange rates which contributed to import growth coming down quite dramatically from its peak of over 30 percent in the first quarter of last year.

However, at 9.1 percent it is only marginally lower than the 10.4 percent growth in exports, read the report.

Due to the weak macroeconomic situation and a delay in making adjustments of the exchange rate the major loss of foreign exchange reserves was incurred, reducing coverage down to 1.5 months of imports by September.

The current account deficit in Pakistan experienced the sharpest decline in the region from $220 million in the 1st quarter of 2016 to $5.80 billion in the 2nd quarter of 2018.

The rise in imports was partially attributed to “capital goods imports for the China-Pakistan Economic Corridor (CPEC), but it is also the consequence of growing macroeconomic imbalances,” said WB.

However, the WB said, “Fiscal challenges vary across the region, the report notes that tax revenue is consistently low across most South Asian countries and at rates below that of other developing countries with a similar income per capita, sometimes by a vast margin.”

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