Pakistan among states to see foreign investment hit by polls-related uncertainty: WB

ISLAMABAD: While keeping Pakistan’s GDP growth projections unchanged at 1.7 and 2.4 percent for FY24 and FY25, the World Bank (WB) states that parliamentary elections are scheduled for 2024 in several South Asian countries, including Pakistan, and heightened uncertainty around these elections could dampen foreign investment.

“In a number of SAR economies (Bangladesh, Bhutan, India, Maldives, and Pakistan), parliamentary or national assembly elections are scheduled or planned in 2024. The heightened uncertainty around these elections could dampen activity in the private sector, including foreign investment. If combined with political or social unrest and elevated violence, this could further disrupt and weaken economic growth,” it was stated in the Global Economic Report released by the World Bank on Wednesday.

In addition, the WB report says that particularly in countries with weak fiscal positions, an increase in spending prior to these elections could exacerbate macro-fiscal vulnerabilities. However, the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in prospects.

In Pakistan, the economic outlook for FY2023/24 (July 2023 to June 2024) remains subdued, with growth projected at only 1.7 percent. Monetary policy is expected to remain tight to contain inflation, while fiscal policy is also set to be contractionary, reflecting pressures from high debt-service payments. Weak confidence stemming from political turmoil will contribute to the slow growth in private demand. As inflationary pressure eases, growth is expected to pick up to 2.4 percent in FY2024/25.

As poorer households spend more on food, rising food prices would disproportionately affect the poor and the vulnerable, resulting in an increase in poverty and inequality. The risk is particularly high in countries with limited fiscal buffers to mitigate adverse effects, including Nepal and Pakistan, and in countries under major security threats, including Afghanistan. In addition, an increase in food insecurity could be exacerbated by the escalation of the ongoing conflict in the Middle East.

External and fiscal financing needs are elevated in several SAR economies, including Maldives, Pakistan, and Sri Lanka, increasing vulnerabilities to financial market disruptions.

Output in Pakistan is estimated to have contracted during FY2022/23 (July 2022 to June 2023). Inflation remained elevated, partly reflecting large currency depreciation in early 2023. However, towards the end of 2023, Pakistan’s currency exhibited signs of stabilization.

The outlook in Pakistan remains subdued for FY2023/24. Monetary policy is expected to remain tight to contain inflation, while fiscal policy is also set to be contractionary.