ISLAMABAD: The World Bank has projected Pakistan’s GDP growth rate at two percent in the fiscal year 2022-23, half the pace that was anticipated last June, while saying that the country faces challenging economic conditions, including the repercussions of the recent flooding and continued policy and political uncertainty.
The bank in its latest report, “Global Economic Prospects” stated that Pakistan, with low foreign exchange reserves and rising sovereign risk, saw its currency depreciate by 14 percent between June and December and its country risk premium rise by 15 percentage points over this same period.
It further stated that as the country implements policy measures to stabilize macroeconomic conditions, inflationary pressures dissipate, and rebuilding begins following the floods, growth is expected to pick up to 3.2 percent in the fiscal year 2023-24, still below previous projections.
The report noted that the recent floods in Pakistan are estimated to have caused damage equivalent to about 4.8 percent of GDP. Extreme weather events can exacerbate food deprivation, cut the region off from essential supplies, destroy infrastructure, and directly impede agricultural production.
Pakistan faces mounting economic difficulties and Sri Lanka remains in crisis. In all regions, improvements in living standards over the half-decade to 2024 are expected to be slower than from 2010-19, the report noted.
The East Asia and Pacific (EAP) and the South Asia (SAR) are the only regions where real effective exchange rates did not strengthen significantly in 2022, due to the weakening Chinese renminbi and sharp nominal currency depreciations in Pakistan and Sri Lanka, respectively. Some areas of SAR also face particularly elevated risks, as illustrated by the damage wrought by recent flooding in Pakistan.
The report further stated that floods in Pakistan have inundated one-third of the country, while droughts in South America threaten agricultural production and larger ecosystems. Such extreme events are become increasingly likely as global warming heightens the expected losses and damages related to climate change.
In some economies, the deterioration in economic conditions has led to a substantial rise in poverty (Afghanistan, Pakistan and Sri Lanka). Many households are consuming less nutritious food, and rolling electricity blackouts have become common as fuel has been rationed.
The combination of limited foreign exchange buffers and widening external current account deficits encouraged several countries (Bangladesh, Pakistan) to approach the International Monetary Fund (IMF) for help in bolstering foreign exchange reserves and mitigating external financing pressures. In parallel, governments have tightened fiscal policies and, in some cases, imposed import controls and food export bans.
Copyright Business Recorder, 2023