Marred with a gigantic inflation rate, large fiscal and current account deficits, and the low level of foreign exchange reserves, the World Bank has projected Pakistan’s GDP growth to reduce to 2% in FY23 — half the pace that was anticipated last June.
A World Bank Group flagship report, titled “Global Economic Prospects”, mentioned that only three years after emerging from the pandemic-induced recession of 2020, global growth has slowed to the extent that the economy is perilously close to falling into recession — defined as a contraction in annual global per capita income.
It said that the global high rate of inflation triggered “unexpectedly rapid and synchronous monetary policy tightening around the world to contain it”.
According to the report, global growth is expected to decelerate sharply to 1.7 % in 2023, mainly due to the elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine.
In Pakistan, the report stated, an already precarious economic situation, with low foreign exchange reserves and large fiscal and current account deficits, was exacerbated last August by severe flooding, which cost many lives.
Pakistan’s forex reserves plunge $245.4 million to reach $5.57 billion
About one-third of the country’s land area was affected, damaging infrastructure and directly affecting about 15% of the population.
It noted that the recovery and reconstruction needs are expected to be 1.6 times the FY23 national development budget. The flooding has seriously damaged agricultural production—which accounts for 23% of GDP and 37 % of employment.
The report added that Pakistan faces challenging economic conditions, including the repercussions of the recent flooding and continued policy and political uncertainty.
As the country implements policy measures to stabilize macroeconomic conditions, inflationary pressures dissipate, and rebuilding begins following the floods, growth is expected to pick up to 3.2% in FY2424 — still below previous projections.
In the region excluding India, growth in 2023 and 2024 — at 3.6% and 4.6%, respectively — is expected to underperform its average pre-pandemic rate.