ISLAMABAD: The World Bank (WB) has said that Pakistan’s economy is expected to grow by only 0.4% in the current fiscal year ending June 2023 with the country’s inflation projected to rise to 29.5 percent due to higher energy and food prices.
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In a statement released the other day, the World Bank (WB) said Pakistan required committed efforts for sustainable macro-fiscal and structural reforms to overcome the economic challenges confronted by the country.
“This is needed both to unlock fresh financing and avoid a balance of payments crisis and lay the foundation for a recovery of private investor confidence and higher growth over the medium term,” WB Country Director for Pakistan Najy Benhassaine said while releasing the latest “Pakistan Development Update: Recent Economic Developments, Outlook and Risks.”
According to the report, the success of the International Monetary Fund’s Extended Fund Facility Program is reliant on acquiring new official external financing, and any delays could worsen the situation.
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To acquire the necessary financing and stabilize the economy for medium-term recovery, the report suggests that the government should maintain sound macroeconomic management, including having a flexible exchange rate, controlling inflation through appropriate monetary policy, increasing revenue, rationalizing expenses (including reducing energy subsidies that lack targets), and implementing private sector and trade reforms to improve investment, competitiveness, and productivity.
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Pakistan’s output growth could gradually recover in fiscal years 2024 and 2025, according to the report, if the required reform agenda was rapidly implemented with strong political ownership and adequate eternal support.
“Growth will remain below potential, however, while external adjustment continues,” it said adding due to higher energy and food prices, inflation was projected to rise to 29.5 percent in FY2023, but moderate as global inflationary pressures decreased.
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With dampened imports, it said the current account deficit was projected to narrow to 2.0 per cent of the Gross Domestic Product (GDP) during the current fiscal year but widened to 2.1 and 2.2 per cent of the GDP in FY24-FY25 respectively as import controls eased.
“The fiscal deficit, excluding grants, is projected to narrow to 6.7 per cent of the GDP in FY23 and further over the medium term as fiscal consolidation takes hold,” the report said.
The WB report said Pakistan’s economy was expected to grow by only 0.4 per cent in the current fiscal year ending June 2023.
Over FY23, it said Pakistan faced devastating floods and increasing global commodity prices following the Russia-Ukraine conflict.
The World Bank experts explained the factors that led to the depletion of foreign exchange reserves and hindered the progress of the planned fiscal consolidation, citing rising macro risks and tighter global liquidity conditions that have limited Pakistan’s access to the international capital market.
The report also outlined the remedial actions taken by the current government to improve the national economy, such as reducing spending on subsidies, raising energy tariffs, and allowing the exchange rate to float, which caused a sharp depreciation and alignment between the interbank and open rates.
