After the World Bank projected Pakistan’s economy to grow by 0.5 percent this fiscal, which was very different from the government’s own expectation of 2.1 percent, Moody’s Investors Service has now put the number somewhat in the middle; at 1.5 percent.
Moody’s Credit Rating Agency sees the economy expanding to 4.4pc in FY2022. While it’s too soon to tell which of the three might be correct, it’s still pretty clear that forecasting is a difficult thing to do in the present economic environment.
The wide divergence in growth projections for the present year is not surprising as these are based mainly on different sets of data and policies, short- to medium-term trends, global economic drifts, and other variables.
Last year, Pakistan’s economy contracted for the first time in 68 years by registering 0.4 percent negative growth due to the outbreak of the COVID-19 pandemic. Even though short-term macroeconomic trends are showing improvements, Moody’s expects economic activities to remain below pre-COVID levels for some time.
The agency says the perceived risks to Pakistan’s economy are lower than for similarly rated peers, as it is a relatively closed economy with lower dependence on exports and private capital flows. The slow economic revival may hurt government finances.
The agency acknowledges that different initiatives and fiscal stimulus packages given by the government and the central bank helped put the macroeconomy back on the growth track but did not fully offset the pandemic’s impact on the economy.
With the pandemic worsening and businesses retrenching staff, unemployment is rising and tax earning is also dipping, nobody yet knows what exactly will happen. That is why there is so much uncertainty about where the economy will eventually settle as the fiscal year rolls on.
The government should change its current policies and undertake structural reforms to help the economy get back on its feet on a sustainable basis.
