ISLAMABAD: The World Bank has projected Pakistan’s GDP growth at 1.8 percent against the budgetary estimates of 3.5 percent for the ongoing fiscal year while seeing no reduction in poverty over the medium term owing to weak growth and persistently high inflation.
The bank in its latest report, “Pakistan Development Update: Fiscal Impact of Federal State-Owned Enterprises” released on Tuesday, stated Pakistan’s economy has been stabilising and is showing early signs of a recovery, however, the current recovery is neither sustainable nor sufficient to reduce poverty.
The bank stated that in the absence of an ambitious and credible economic reform plan, confidence and investment are likely to remain muted, with real GDP projected to grow at 1.8 per cent in fiscal year 2024.
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As confidence improves with the expected implementation of a new IMF programme, output growth is expected to gradually recover to an average of 2.5 per cent over fiscal year 2025 and fiscal year 2026 but remaining below potential in the medium term.
Consumer price inflation is projected to remain elevated at 26 per cent in fiscal year 2024. The increase in prices is driven by domestic gas, electricity, and fuel tariff adjustments resulting in a significant increase in domestic energy prices. In view of the persistently high inflationary pressures, the State Bank of Pakistan (SBP) is expected to maintain a tight monetary policy stance in fiscal year 2024. Inflation will gradually moderate in fiscal year 2025-26 due to a high base effect and as global commodity prices ease.
The report noted that growth remains insufficient to reduce poverty, with 40 per cent of Pakistanis now living below the poverty line. Macroeconomic risks remain very high amid a large debt burden and limited foreign exchange reserves.
Poverty increased by an estimated 4.5 percentage points in the fiscal year 2023, with 10 million people just above the poverty line at risk of falling into poverty in the face of shocks. The poverty headcount rate is projected at 40.1 per cent for the current fiscal year 2024 compared to 39.9 per cent in 2023.
The poverty headcount rate, measured at the lower-middle-income country poverty line of $3.65/day 2017 purchasing power parity (PPP), is expected to remain around 40 per cent over fiscal year 2024-26.
The lower than potential growth and high inflationary pressures due to continued import management measures, and potential reduction in public spending on social sectors, are expected to worsen human development outcomes. These effects will be especially compounded for poorer households with already depleted savings and reduced incomes.
Chronic inflation in the absence of substantial growth, along with policy uncertainty, could cause social discontent and have negative welfare impacts. Increased targeted transfers will play a vital role to protect the poorest from these risks.
Even with the recent successful completion of the IMF-SBA and continued rollovers, reserves are projected to remain low, hovering around 1.3 months of total imports over the fiscal year 2024-26.
The report noted that reflecting a recovery from the 2022 floods in fiscal year 2023, agricultural output is expected to grow rapidly by 3 per cent in fiscal year 2024, largely supported by a higher estimated output of major crops, particularly of cotton and rice.
The agriculture sector is expected to grow at an average rate of 2.5 per cent over the fiscal year 2025-26. With easing import management measures and spillovers from strong agriculture performance, industry is expected to recover, growing at 1.8 per cent in fiscal year 2024.
Despite improved confidence, the growth of the industrial sector is projected to remain muted at an average of 2.3 per cent over the medium term, mainly due to tight macroeconomic policies and continued import management measures.
Copyright Business Recorder, 2024
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