ISLAMABAD: The World Bank (WB) has massively revised downward the GDP growth rate projection for Pakistan by five percent to negative 2.6 percent from 2.4 percent for the outgoing fiscal year 2019-2020.
The bank in its latest report, "Global economic prospects", forecast Pakistan's current year growth rate at negative 2.6 percent - five percent lower than its estimates of January 2020 - before touching negative 0.2 percent for next fiscal year 2020-2021. The bank earlier in January 2020 projected the GDP growth rate at three percent for 2020-2021, but now it has been revised downward by 3.2 percent.
The National Accounts Committee has calculated GDP growth to be negative 0.38 percent for outgoing fiscal year.
The swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction.
According to bank forecasts, the global economy will shrink by 5.2 percent this year.
That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870, the bank added.
Pakistan and Afghanistan are both projected to experience contractions in 2020.
Mitigation measures imposed in these countries are expected to weigh heavily on private consumption, contributing to output contractions of -2.6 percent (2019-2020) and -5.5 percent, respectively.
Key labour-intensive export sectors such as textiles are expected to contract sharply and subsequently recover slowly.
The bank further stated that, while limited testing capacity may understate the true scale of the regional outbreak, the majority of infections in the region are in India (200,000), Pakistan (70,000), and Bangladesh (50,000). Nationwide lockdowns in these three largest regional economies sharply curtailed activity in the services sector, and manufacturing production.
Sales and production in a number of key sectors in regional economies (e.g., autos in Pakistan, garment in Bangladesh) have been hit especially hard amid anemic demand.
Business confidence in both manufacturing and services sectors have concomitantly fallen in economies such as Pakistan's.
Key trading corridors in the region also witnessed disruptions.
It further stated that private consumption has been severely hindered as large-scale lockdowns were instituted in several economies, including Bangladesh, India, Nepal, and Pakistan.
Some recent relaxations to these measures have been cautious, given continued rise in the Covid-19 cases.
Non-essential business closures stalled retail sales.
In rural areas, food and other essential activity deliveries also faced major impediments.
Closure of small and medium-sized enterprises, a key engine of regional private sector activity, induced a substantial loss in employment and private investment.
The sharp decline in oil prices in 2020 could provide some support to the region, given sizable oil imports in India and Pakistan, and help cushion fiscal and current account balances. This positive effect may be offset by falling remittance inflows from oil-exporting economies, however, as economies that host migrants from South Asia Region (SAR) struggle with the twin challenges of the pandemic and the oil price collapse.
These flows are expected to decline by about one-fifth in the SAR region this year.
International travel bans and school closures have been widespread in SAR economies.
Public transport has also been closed in two-third of the countries.
Near total lockdowns in several regional economies severely hindered mobility and impeded delivery of essential services, non-essential businesses have been closed in Pakistan, and airports have been shut for arrivals in Sri Lanka.
Despite the deterioration in fiscal positions, a number of commodity importers have announced stimulus packages (India, Pakistan, Poland, Thailand, and Turkey).
In addition, central banks in many commodity importers have enacted policy rate cuts.
Several central banks in the SAR have also lowered policy interest rates, aided by an impending drop in inflation due to falling oil prices (Bangladesh, India, Pakistan, and Sri Lanka).
These monetary policy actions have been complemented with measures to provide liquidity to financial markets and banking systems in several economies.
In SAR, India, Pakistan, and Bangladesh have announced fiscal, liquidity, and loan support measures, ranging from three to 10 percent of the GDP. In Pakistan, measures also include additional spending on healthcare, cash transfers, and relief in utility payments. The median fiscal deficit in the SAR is foreseen to widen from 5.4 percent of GDP in 2019 to 6.9 this year.
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