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January 18, 2020

From next fiscal 2020-21: Pak economy to recover if IMF reforms implemented, says UN

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January 18, 2020

ISLAMABAD: The UN projects Pakistan’s economy to grow by estimated at 3.3 per cent for 2019-20, is projected to slip to 2.1 per cent next year, while Indian economy will grow by 5.7 per cent in the current fiscal year and expects it to rise to 6.6 per cent in the next. Bangladesh is forecast to grow by 8.1 per cent this fiscal year and 7.8 in the next.

In Pakistan, the economy is expected to recover slightly from 2021 onward, amid the implementation of government reforms.

The projections were made in the UN’s World Economic Situation and Prospects (WESP) report. According to the report, onlyChina has a higher growth rate than India among the world's large economies with a 6 per cent forecast for the current calendar year.

The report says Pakistan, meanwhile, has been struggling with a balance-of-payments crisis and the burden of high public debt, which have led to an arrangement with the IMF and corresponding fiscal tightening.

High inflation and security concerns have hurt domestic demand and private investment, and the Government’s ability to address the slowdown has been severely curtailed by the fiscal tightening.

Export growth has fallen to 0.4 per cent owing to disappointing sales of textiles, which constitute 60 per cent of the country’s goods exports. GDP growth has remained weak at 3.3 per cent in both 2018 and 2019—well below the 4–6 per cent range of previous years. Nevertheless, the economy of Pakistan is expected to recover slightly from 2021 onward as increased government revenues from a tax hike allow expanded public investment and as other government reforms required by the IMF begin to bear fruit. In 2021 the economy is projected to grow by 3.3pc. Continued commitment to reform, combined with productive investment in infrastructure and strategic capacity development, will be critical for the country to find its way back to its previous growth path.

Meanwhile, the State Bank of Pakistan is balancing a stronger commitment to inflation targeting with a managed depreciation of the currency, but this is complicated by increases in energy tariffs that have been imposed as part of the fiscal reform package.

While the tightened monetary policy in Pakistan is expected to help move inflation towards target levels in the years to come, the country’s inflation remains extremely vulnerable to fuel price fluctuations and weather conditions, as is the case for most countries in the region. A good harvest and resulting moderate food price inflation will be of critical importance for the region’s poor, whose household budgets are strongly linked to food prices.

In Afghanistan, Bangladesh, Pakistan and Sri Lanka, for example, more than 30 per cent of youth are not in education, employment or training; in India, this figure is over 40 per cent.

Briefing the media about the report, UN's Chief Economist Elliott Harris presented a dire picture of the global economy last year when the world's gross product growth rate dropped to 2.3 per cent, the lowest in a decade.

Elliott Harris said that rising tariffs and rapid shift in trade policies were responsible for the lower growth rate with the United States-China trade disputes playing a significant part.

Associate Economics Affairs Officer Julian Slotman, the UN's pointperson for Indian and South Asia, said in an interview to foreign media that "globally we have seen a large impact of trade tensions, particularly between the US and China, but also other major economies, that have affected growth rates across the globe and also, of course, India which is a very open economy, that has a lot to gain from international trade," Julian Slotman said.

The world economy risks suffering a slowdown in 2020 that would derail efforts to tackle the mounting climate emergency and heightened poverty around the world, the UN warned.

“Impacted by prolonged trade disputes, the global economy suffered its lowest growth in a decade, slipping to 2.3 percent in 2019… however, (the world) could see a slight uptick in economic activity in 2020 if risks are kept at bay,” United Nations said in its flagship World Economic Situation and Prospects (WESP) 2020 report.

The report states that growth of 2.5 percent in 2020 is possible, “but a flareup of trade tensions, financial turmoil, or an escalation of geopolitical tensions could derail a recovery”.

In a downside scenario, global growth would slow to just 1.8 percent this year.” It said a prolonged weakness in global economic activity may cause significant setbacks for sustainable development, including the goals to eradicate poverty and create decent jobs for all.

“At the same time, pervasive inequalities and the deepening climate crisis are fueling growing discontent in many parts of the world.” UN Secretary-General António Guterres warned that these risks could inflict severe and long-lasting damage on development prospects. “They also threaten to encourage a further rise in inward-looking policies, at a point when global cooperation is paramount.”