A recently published World Bank report suggests that Pakistan’s economy might slow down in the ongoing fiscal year.
The report titled ‘Budget Crunch’ projected a 4.8% fall in the country’s GDP growth rate for the fiscal year 2019, citing macroeconomic instability and tighter fiscal and monetary policies as the core reasons.
The report, published bi-annually, revealed that Pakistan’s remittances did not increase from the point they were last year; whereas other countries of South Asian regions such as Bangladesh and India saw an 18% and 28% rise in the same period, respectively.
The report further states that inflation in Pakistan escalated to 5.9% in August this year compared to 4.15% in FY17.
The report, however, appreciates the fact that despite upheavals on the macroeconomic front, Pakistan’s economy grew at 5.8%, with its industrial production registering a 4.5% growth.
The WB report observes that the country allowed depreciation of its currency, which hit the lowest ebb of Rs 129 in the later days of July.
“There was a 10 per cent depreciation compared to the beginning of the year and a 14 per cent depreciation compared to one year before,” said Word Bank report.
The report observes that due to the depreciation of Pakistan’s nominal exchange rate; the country’s real effective exchange rate has been badly hit, taking down import growth substantially to 9.1pc. Pakistan’s import growth was at its peak of over 30pc in the first quarter of FY17, the report highlighted.
It noted that the country’s foreign reserves have also significantly reduced, down to just one and a half months of imports by the end of September, largely due to a weak macroeconomic situation.
The World Bank report reveals that the current account deficit of the country saw a drastic rise in the region from $220 million in the 1st quarter of FY16 to $5.80 billion in the 2nd quarter of FY18.
‘It all started after the Pak-China Economic Corridor (CPEC) deal was materialized and Pakistan began to import ‘capital goods for the CPEC project,’ said WB.
The Washington-based lender termed the country’s ‘growing macroeconomic imbalances’ as another core reason behind the sharp increase in the current account deficit.
“Budget deficits in South Asia are among the highest in the world, and this could be storing up trouble for the future,” believes Hartwig Schafer, WB Vice President for South Asia.
He explains that most South Asian countries [including Pakistan] generate low tax revenue, which leads to having large budget deficits, which is worsened due to economic shocks and election cycles.
Despite all the odds, the South Asian region is set to accelerate its growth rate to 7.1 per cent in FY19 and would be the world’s fastest-growing region, WB’s report says.