Local news of city Miānwāli Pakistan
The World Bank In Pakistan
Pakistan has important strategic endowments and development potential. The increasing proportion of Pakistan’s youth provides the country with a potential demographic dividend and a challenge to provide adequate services and employment.
In July 2019, Pakistan entered into a 39-month Extended Fund Facility (EFF) arrangement with the International Monetary Fund. Stabilization measures under the EFF were expected to moderate aggregate demand pressures in the economy. Leading indicators suggested a slowdown in growth in the first 7-8 months of FY20. The output of large-scale manufacturing (which accounts for around 50 percent of industrial output) contracted by 3.4 percent in Jul-Jan FY20. The agriculture sector, however, registered growth in the rice and livestock sub-sectors.
However, the rapid spread of the COVID-19 virus since February 2020 has brought economic activity to a near-halt. Most of the country has been placed under a partial lockdown. The closure of non-essential businesses and domestic supply chain disruptions are having a significant impact on wholesale and retail trade and transport, storage and communication, the largest sub-sectors of the services sector. The drop in domestic and global demand is also compounding the strains on the industrial sector, which is hit by both supply and demand shocks. In addition, the country’s main industrial sector – textiles and apparel – is highly exposed to COVID-19-related disruptions due to its labor-intensity.
Average inflation increased to 11.8 percent during Jul-Mar FY20 (from 6.8 percent in Jul-Mar FY19) reflecting upward adjustments in administrated prices and exchange rate depreciation pass-through. The State Bank of Pakistan (SBP) maintained a tight monetary stance during this period, keeping the policy rate at 13.25 percent to dampen inflationary expectations. However, as the COVID-19 pandemic spread, it reduced the policy rate to 11.0 percent in March 2020.
The Current Account Deficit (CAD) narrowed to 1.0 percent of GDP in Jul-Feb FY20, from 3.5 percent in the same period in FY19, thanks to a 17.5 percent decline in goods imports. This, together with large multilateral disbursements and higher foreign investment flows, helped shore up gross international reserves to US$13.2 billion (as of March 27th, 2020)—or equivalent to 3.5 months of imports. However, due to global developments, foreign investors have offloaded more than half of their position in domestic securities since February 2020. The exchange rate, which had remained relatively stable through June-February FY20, depreciated by 7.3 percent in March.
In the first half of FY20, the fiscal deficit stood at 2.3 percent of GDP, compared to 2.7 percent in the first six months of FY19. The fiscal adjustment was achieved through increases in domestic revenue collections and slower growth in non-interest recurrent expenditures. However, the COVID-19 pandemic is likely to put significant pressure on expenditures whereas revenue collections are expected to be negatively impacted. Pakistan’s public debt, which stood at 87.5 percent of GDP at the end of FY19, may rise as a result.
Real GDP growth is projected to contract by 1.3 percent in FY20 as domestic and global economic activity slows down sharply in the last four months of the fiscal year. The outbreak of COVID-19 will impact growth beyond FY20. Under the baseline scenario, growth will remain muted in FY21 before reaching 3.2 percent in FY22. Inflation is expected to average 11.8 percent in FY20 and to gradually decline thereafter.
The current account deficit is projected to narrow to 1.9 percent in FY20, as imports contract more than exports. Export growth is expected to remain negative in FY21 but to subsequently rebound. Similarly, imports are expected to recover slowly from FY22 on wards, as domestic industrial activities pick up. Remittances are expected to contract 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.
The fiscal deficit is expected to remain elevated in FY20 and FY21. Revenue mobilization 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 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.
There are considerable downside risks to the outlook. The immediate challenge for the government is to contain the spread of the COVID-19 pandemic, while minimizing economic losses and protecting the poorest. In the medium-to-long term, the government should remain focused on implementing structural reforms to boost private investment sustainably.