ISLAMABAD: The Gross Domestic Product (GDP) of Pakistan will contract by 1.3 per cent in financial year 2020 due to a sluggish domestic and global economic activity in the last four months of the fiscal year, said the World Bank (WB) in a report on Sunday.
According to the report, Pakistan made considerable progress toward macroeconomic stabilisation during the first eight months of FY20. Measures taken by the authorities helped reduce domestic and external imbalances although at the cost of dampened economic activity, it added.
However, the outbreak of COVID-19 would impact regional growth beyond FY20 due to which growth would remain muted at 0.9 per cent in FY21 before reaching 3.2 per cent in FY22.
It said that inflation was expected to average 11.8 per cent in FY20 and to gradually decline thereafter. The current account deficit is projected to narrow to 1.9 per cent in FY20, as imports contract more than exports while the export growth is expected to remain negative in FY21 but to rebound thereafter and reach 6.7 per cent in FY22.
Similarly, imports are expected to recover slowly from FY22 onwards, as domestic industrial activities pick up.
Remittances are expected to contract by 6.5 per cent and 6 per cent in FY20 and FY21, respectively, due to lower growth in the Gulf Cooperation Council economies. Increased multilateral and bilateral flows are expected to be the main financing sources over the medium-term.
According to the report, the fiscal deficit is expected to remain elevated, at 9.5 and 8.7 per cent of GDP in FY20 and FY21, respectively.
Revenue mobilisation efforts will be negatively impacted by subdued domestic activity, while expenditures will increase to contain the spread of COVID-19 and support the economy.
The fiscal deficit is expected to fall gradually to 6.0 per cent of GDP by FY22 as the impact of the crisis tapers-off.
However, the public debt-to-GDP ratio is expected to increase and remain elevated over the medium-term, with Pakistan’s exposure to debt-related shocks remaining high.
The poverty outlook for FY21 will depend critically on the ability of the informal off-farm sector to recover from the current crisis.
The duration of the crisis and the capacity of government interventions to protect investments in physical and human capital of the most vulnerable segments of the population will be important to prevent long lasting consequences.
Overall, in South Asian countries, the GDP would fall to a range between 1.8 per cent and 2.8 per cent in 2020, down from 6.3 per cent projected six months ago, the report added.
That would be the region’s worst performance in the last 40 years, with temporary contractions in all South Asian countries. In case of prolonged and broad national lockdowns a worst-case scenario in which the entire region would experience a negative growth rate this year.
This deteriorated forecast would linger in 2021, with growth projected to hover between 3.1 per cent and 4.0 per cent, down from the previous 6.7 per cent estimate.
It said that amid the mounting human toll and global economic fallout triggered by the COVID-19 pandemic, South Asian governments must ramp up action to curb the health emergency, protect their people, especially the poorest and most vulnerable, and set the stage now for fast economic recovery.
