Assessing Pakistan’s Economic Outlook: A World Bank Analysis

World Bank

Current Economic Scenario

The World Bank’s latest report indicates a forecast of subdued economic activity for Pakistan, with GDP growth expected to reach 1.8 percent in the current fiscal year. This projection stems from ongoing challenges such as persistent trade deficits and limited access to external financing, leading to foreign exchange liquidity issues.

Challenges Ahead

Despite the recent completion of the International Monetary Fund’s Stand-By Arrangement and ongoing financial arrangements, reserves are anticipated to remain low. Import management measures are foreseen to disrupt domestic supply chains, compounded by stringent macroeconomic policies curbing aggregate consumption and investment.

Growth Projections

The report underscores the necessity of a credible and ambitious economic reform agenda to mitigate uncertainty, bolster confidence, and stimulate growth. It anticipates economic activity to continue at a subdued pace, with real GDP growth projected at 1.8 percent in fiscal year 2024. Over the next two years, output growth is expected to recover modestly, averaging 2.5 percent, but remaining below potential in the medium term.

Inflation and Current Account Deficit

Inflation is projected to remain elevated at 26 percent in fiscal year 2024, primarily due to higher domestic energy prices, with a gradual moderation expected over the medium term as global commodity prices stabilize. The current account deficit is forecasted to remain low at 0.7 percent of GDP in the current fiscal year, with expectations of further narrowing to 0.6 percent of GDP in the next two years, driven by reduced domestic demand and continued import management measures.

Risks and Uncertainties

However, the report highlights several risks to Pakistan’s economic outlook, including heavy domestic borrowing for fiscal financing, a low tax-to-GDP ratio, and growing policy uncertainties that could weaken business confidence and limit external financing.

Reforming State-Owned Enterprises

Urgent reforms are deemed necessary for state-owned enterprises to mitigate growing fiscal risks, as these entities have been consistently incurring losses since 2016, necessitating significant financial support from the government.

Addressing Poverty Concerns

While Pakistan has managed to avert an immediate economic crisis following the IMF program secured in July 2023, the report emphasizes the need for steadfast implementation of reforms to sustain the nascent recovery. Despite some improvements, poverty remains a pressing concern, exacerbated by inadequate wage growth relative to inflation, leading to an estimated increase in poverty levels and significant inflation inequality across households, particularly impacting those heavily reliant on food expenditures.

Conclusion

In conclusion, the World Bank’s analysis paints a challenging yet manageable economic picture for Pakistan, provided that urgent reforms are implemented to address existing vulnerabilities and stimulate sustained growth.

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