WB, ADB cut Pakistan GDP forecast to below 1pc

ISLAMABAD: Projecting a massive decline in GDP growth to 0.4 percent, the World Bank (WB) warns that the non-completion of IMF programme, failure to secure financing from key bilateral partners and political instability may result in eruption of a major macroeconomic crisis.

While the Asian Development Bank (ADB), in a separate report, projects a significantly lower GDP growth rate of 0.6 percent, ballooning inflation of up to 27.5 percent and an ongoing foreign exchange crisis in Pakistan.

In Pakistan Development Outlook released here on Tuesday, the WB says: “The country’s outlook is subject to major downside risks, which, if they materialise, could result in a macroeconomic crisis. The non-completion of the IMF programme and failure to secure expected rollovers, refinancing, and new financing from key bilateral partners presents major risks.”

According to the WB report, approximately four million people fell below the poverty line as poverty increased by one percentage point in Pakistan during the last year. The poverty measured at the lower middle-income poverty line (3.65 USD/day 2017 PPP per capita) is projected to increase to 37.2 percent in FY23 against 36.2 percent in FY22 pushing an additional 3.9 million people into poverty as compared to FY22.

The World Bank’s office in Islamabad arranged a press briefing on the occasion of launching “Pakistan Development Update: Recent Economic Developments, Outlook and Risks”. WB’s Country Director Najy Behhassine stated in reply to a question that securing of external financing needs was must for the revival of the IMF programme. He said that Pakistan would have no choice but to seek the Fund programme as it would help restore confidence. He said that there was no trust deficit in the case of Pakistan as the disbursement of project loans remained historically high.

When asked about prospects of regional trade, the WB official said that Pakistan’s exports potential in case of regional integration stood at $68 billion out of which trade with India could jack up exports up to $10 billion over the medium term while it could go up by $13 billion with China.

The WB has projected that the real GDP growth would be standing at 0.4 percent in the current fiscal year against 6 percent in the last financial year while inflation on average would peak to 29.5 percent. The WB official said that the elevated inflation could not be termed as hyper-inflation because it would cross 50 percent then it would be declared as hyper-inflation. The WB says the financial account ran a deficit of $1.2 billion in H1 FY23 compared to a surplus of $10.1 billion in H1 FY22, the largest half-year deficit in the last twelve years, which was due to the lack of fresh financial inflows and substantial debt repayments over the period.

According to the ADO April 2023, ADB’s flagship economic report, Pakistan’s gross domestic product (GDP) growth is projected to slow to 0.6 percent in FY2023 from 6 percent last fiscal year as the economy struggles to recover. Growth is forecast to rise to 2 percent in FY2024, assuming the resumption of macroeconomic stability, implementation of reforms, post-flood recovery, and improving external conditions.

“Pakistan’s economy continues to face strong headwinds while last year’s catastrophic floods have exacerbated the economic and financial challenges,” said ADB Country Director for Pakistan Yong Ye.

“Yet, with a history of resilience in the face of adversity and depending on a fast return to stability twinned with robust macroeconomic and structural reforms, Pakistan can bounce back. ADB is committed to continuing to support Pakistan’s economic recovery and development plans.”

In FY2023, industrial growth is forecast to continue decelerating, which reflects fiscal and monetary tightening, a significant depreciation of the local currency, and higher domestic oil and electricity prices. The fiscal deficit is projected to narrow slightly to the equivalent of 6.9% of GDP in FY2023.