The World Bank has said the devastating effects of the August 2022 floods, policy uncertainty and shrinking foreign exchange resources have depressed economic activity in Pakistan as the top financial institution revised the country’s GDP growth for the current year by 1.6 per cent to 0.4pc. Moreover, it portrayed a bleak future in medium term for Pakistan, saying economic recovery in the next two fiscal years was expected to be anaemic – 2pc in 2023-24 and 3pc in 2024-25. The reason for this trend is stated to be the limited fiscal room the government has to support recovery from flood-related damages.

In its latest report “Global Economic Prospects”, the World Bank said the growth rate would stay at 2pc in 2023-24 – next fiscal year – which is a 1.2pc reduction in an earlier estimate released in January this year. The latest projection comes just when the National Economic Council (NEC) on Tuesday set a growth target of 3.5pc for the coming fiscal year. While noting that the country is facing shortage of foreign reserves for importing food items and other goods, the global financial institution said agriculture output is likely to have contracted for the first time in two decades.

The World Bank said exchange rate flexibility resulting in 20pc depreciation in Pakistani rupee since January had sharply increased in headline consumer price inflation to the level of 38pc – highest since records began in the late 1970s. At a time when many circles in the country have expressed their reservations and resentment over the high interest rate, the global lender said policy rate increases had not kept pace with expected inflation; consequently, real interest rates have turned deeply negative.

However, it said the South Asian countries would again start witnessing a reduction in poverty after recent upward movement since 2020-21 – the time when COVID hit the world. But this decline, it warned, would not be as swift as previously expected, given the impacts of high inflation, slow recovery in employment, and withdrawal of pandemic-related food support.

Some economies in the region have suffered significant domestic shocks, and deep crises are continuing to undermine their growth— particularly Afghanistan, Pakistan, and Sri Lanka, the report mentioned. The WB said growth in the region is expected to slow marginally to 5.9pc in 2023 and more significantly to 5.1pc in 2024. But these strong figures for 2023 are a product of the greater-than-expected resilience in private consumption and investment, and a robust services sector in India.

The downward revision in 2024 mainly reflects the lagged impact of tightening domestic policy and global financing conditions, the aftermath of floods and policy uncertainty in Pakistan, and the humanitarian crisis in Afghanistan. It also mentioned that more than half of South Asians had been affected by one or more climate-related disasters over the past two decades.

Credit: Independent News Pakistan-INP