ISLAMABAD: The World Bank (WB) has revised downward the GDP growth rate for Pakistan by 1.6 per cent to 0.4 per cent for the current fiscal year 2022-23 while saying that continuing effects of the August 2022 floods, compounded by worsening social tensions, high inflation, and policy uncertainty are estimated to have limited growth.
In its latest report, “Global Economic Prospects”, the bank has projected the GDP growth rate at two per cent for the next fiscal year of 2023-24, a 1.2 per cent downward revision from January 2023.
The bank stated that agriculture output has likely contracted for the first time in two decades. Economic recovery in the next two fiscal years is expected to be anaemic, with growth of two and three per cent, respectively, as there needs to be more fiscal room for the government to support recovery from flood-related damages.
The report noted that in Pakistan, the lasting effects of the August 2022 floods, along with policy uncertainty and limited foreign exchange resources to pay for imports of food, energy, and intermediate inputs, have depressed activity, with industrial production contracting by about 25 per cent in the year to March 2023.
With dwindling foreign exchange reserves and stagnant remittances, the government has increased exchange rate flexibility, allowing the Pakistani rupee to depreciate by 20 per cent since the start of the year. Consequently, headline consumer price inflation has risen sharply, reaching 38 per cent by May, its highest level since records began in the late 1970s.
In Pakistan and, to a lesser extent, in Sri Lanka, policy rate increases have not kept pace with expected inflation; consequently, actual interest rates have turned deeply damaging. While poverty has recently been increasing in economies facing severe economic pressures— notably Afghanistan, Pakistan, and Sri Lanka— the region is expected to resume its downward trend that was interrupted in 2020- 21, the report noted.
