A broad economic recovery in Pakistan is expected in the current fiscal year (from July 1, 2020 to June 30, 2021) as the economic sentiment improves with the expected subsiding of the Covid-19 pandemic and the resumption of structural reforms, according to a new report by the Asian Development Bank (ADB) released on Tuesday.
“Pakistan has achieved notable success in containing the dual health and economic challenge presented by Covid-19,” said ADB Country Director for Pakistan Yang Xiaohong, adding that as the curve flattens and businesses activity resumes, the economy is showing signs of resilience and recovery.
“The government’s rapid mobilization of Rs1.2 trillion relief package, comprising emergency financial support to daily wage earners, cash transfers to low-income families, accelerated procurement of wheat, support for health and food supplies, and financial support for small and medium enterprises helped shield the poor and most vulnerable during the pandemic,” the country director said. “ADB remains committed to supporting Pakistan through this difficult period and helping the country get back on the path to growth.”
In its Asian Development Outlook 2020 Update, the ADB revised the 2020 growth forecast for Pakistan to -0.4 per cent and for 2021 to 2.0 per cent. In April this year, the ADB had forecast Pakistan to grow 2.6pc this year and 3.2pc next year.
The report said that Covid-19 severely impacted the country’s economic activity in 2020, erasing gains achieved in the first half of FY20.
The suspension of travel and the closure of nonessential businesses induced concurrent demand and supply shocks.
Rising food prices pushed inflation from 6.8 per cent in FY2019 to 10.7 per cent in FY2020, but inflation is expected to slow to 7.5pc in FY2021, the report added.
The current account deficit eased considerably as merchandise imports fell steeply due to containment disruptions, lower oil prices, and local currency depreciation.
The report said as inflationary pressures eased, the State Bank of Pakistan cut its policy rate by a cumulative 625 basis points from March to June 2020 to 7.0 per cent and introduced additional measures to support the economic recovery.
ADB further predicted that Pakistan’s current account deficit is likely to remain contained at the equivalent of 2.4 per cent of gross domestic product in FY2021.