World Bank predicts 2.7pc GDP growth rate for Pakistan in FY 2019-20
The prediction came at time when incumbent government is tightening monetary and fiscal policies to curb macroeconomics imbalances.
In its latest edition of the “South Asia Economic Focus, Exports Wanted”, the World Bank cited macroeconomic imbalances, reflected in large fiscal and current account deficits, as the reason behind the projected slowdown in Pakistan’s GDP growth.
“Economic uncertainty has increased due to protracted negotiations with the IMF. In addition, recent regional tensions have had an impact on risk perceptions. The low reserves position and high debt-ratios limit the buffers that Pakistan could use to absorb external shocks (such as an increase in US interest rates) and may negatively impact the government’s ability to access international markets. Reforms to put the country on a stable growth path include increased exchange rate flexibility, improved competitiveness and lower cost of doing business. On the revenue front, reforms to improve tax administration, widen the tax base and facilitate tax compliance are critical”, read the report.
“In Pakistan, external account pressure reduced international reserves to USD 6.6 billion (1.3 months of goods and services import coverage) by mid-January 2019. With short-term financing from the Kingdom of Saudi Arabia, the United Arab Emirates and China, international reserves increased to USD 10.5 billion (2.0 months of goods and services import coverage) at the end of March. Meanwhile, the government continues to negotiate a support package with the International Monetary Fund,” the report stated.
“The current account deficit continued to widen but stabilized over the course of last year and it stood at 5.2 percent of GDP in the fourth quarter of 2018. The current account deficit reached 8.8 USD billion (3.3 percent of GDP) at the end of February 2019, compared to 11.4 USD billion (3.7 percent of GDP) the year before.”
Regarding inflation, the report observed, “In Pakistan core inflation steadily rose throughout 2018, mostly due to currency pressures which made imported final and intermediate goods more expensive. It reached 8.3 percent (year over year) in December of last year, the highest value since January 2015... Consumer prices increased despite a strong decline in food prices."