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April 11, 2021

Economists fear rise in poverty, unemployment amid downbeat growth

Business

April 11, 2021

ISLAMABAD: Pakistan is set to see rise in poverty and unemployment considering the International Monetary Fund’s (IMF) growth projections for the country at 1.5 percent for the upcoming fiscal year of 2021/22 and 4.5 percent for FY23, economists said on Saturday.

The projected real GDP growth depends on the course of the pandemic, global recovery and vaccine rollout

Growth is expected to gradually improve, but only reach its medium-term potential of 5 percent in FY2024, later than envisioned in the first extended fund facility review, due to the large shock and the need for continued fiscal adjustment, which is expected to offset some of impact of the stronger private sector growth on the overall economy.

Average consumer inflation is expected to average 8.7 percent in FY 2021 and 8 in FY 2022, as continued high food prices and energy price adjustments outweigh soft international oil prices and weak domestic demand, according to the IMF’s latest report

Pakistan’s real GDP contracted modestly by 0.4 percent in FY20, a first since 1952, triggered by a significant drop in manufacturing and services as a result of the COVID-19 containment measures. Following the easing of lockdowns, high-frequency indicators suggest a growth rebound since the summer, pulled by manufacturing, construction and agriculture. However, activity in the services sector—contributing more than 60 percent to GDP—has remained hampered by persisting social distancing measures and the second wave of Covid-19. Nevertheless, consumer and business sentiments have further strengthened over the fall of 2020.

After spiking at 14.6 percent in January 2020, and again in late summer, headline inflation fell to 5.7 percent in January 2021, its lowest rate in two years, mirroring soft domestic demand, low international prices, and the recent improvements in supply conditions of food items, including through strategic imports by the government. Core inflation remains subdued in line with tepid demand-side pressures. Wages have continued their downward trend amid spare capacity in the labor market.

“Pak authorities’ multifaceted policy response to the COVID-19 pandemic has been crucial in mitigating its human and economic impact. Enabled by the policy gains made prior to the crisis and supported by sizable emergency financing from the international community, the policy response included health-related containment measures, a temporary fiscal stimulus, a large expansion of social safety nets, monetary policy support, and targeted financial initiatives,” IMF said.

“This timely and comprehensive response helped mitigate the impact on the economy. After a mild—yet Pakistan’s first recession in almost seven decades—in FY2020, the economy is poised to achieve modest growth in FY2021. Notwithstanding this temporary shift in policy priorities and additional challenges posed by high inflation and the political background, the authorities have remained committed to the EFF’s medium-term objectives.”

They have moved key reforms forward, including the timely adoption of the FY2021 budget in line with IMF advice in June 2020, the signature of agreements with independent power producers in August 2020, and the approval of 14 pieces of anti-money laundering legislation over the summer 2020.

Recently, they also recalibrated the EFF-supported program in a way that strikes an adequate balance between supporting the economy and ensuring debt sustainability. The authorities now need to follow through with its steadfast implementation to ensure a strong and sustainable recovery. 30.

The fiscal strategy remains anchored on a gradual, revenue-based, fiscal consolidation. It importantly creates space for higher social spending and COVID-related priority spending to minimize the short-term impact on growth and the most vulnerable. Meeting the FY2021 primary deficit target requires following through with careful spending management and the envisaged revenue measures, including in the provinces.