The World Bank (WB) has revised the GDP growth rate projection for Pakistan downward by almost 5% to -2.6% from 2.4% for the outgoing fiscal year 2019-20.
The bank in its latest report “Global economic prospects”, forecast Pakistan’s current year growth rate at negative 2.6 % —5% lower than its estimates of January 2020 — before touching negative 0.2% next fiscal year 2020-21.
Earlier in January 2020 projected the GDP growth rate at 3% for 2020-21, but now it has been revised downward by 3.2%. However, the National Accounts Committee has calculated GDP growth to be negative 0.38% for the outgoing fiscal year.
Pakistan and Afghanistan are both projected to experience contractions in 2020. Mitigation measures imposed in these countries are expected to weigh heavily on private consumption, contributing to output contractions of -2.6 % (2019-20) and -5.5 %, respectively. Key labor-intensive export sectors like textiles are expected to contract sharply and subsequently recover slowly.
The report further stated that while limited testing capacity may understate the true scale of the regional outbreak of the coronavirus, the majority of infections in the region are in India (200,000), Pakistan (70,000), and Bangladesh (50,000). Nationwide lockdowns in these three largest regional economies sharply curtailed activity in the services sector and manufacturing production.
Sales and production in a number of key sectors in regional economies (e.g., autos in Pakistan, garments in Bangladesh) have been hit especially hard amid anemic demand. Business confidence in both manufacturing and services sectors has concomitantly fallen in economies like Pakistan. Key trading corridors in the region also witnessed disruptions.
It further stated that private consumption has been severely hindered as large-scale lockdowns were instituted in several economies, including Bangladesh, India, Nepal, and Pakistan. Some recent relaxations to these measures have been cautious, given a continued rise in COVID-19 cases.
Non-essential business closures stalled retail sales. In rural areas, food and other essential activity deliveries also faced major impediments. Closure of small and medium-sized enterprises, a key engine of regional private sector activity, induced substantial loss in employment and private investment.
The sharp decline in oil prices in 2020 could provide some support to the region, given sizable oil imports in India and Pakistan, and help cushion fiscal and current account balances. This positive effect may be offset by falling remittance inflows from oil-exporting economies, however, as economies that host migrants from the South Asia Region (SAR) struggle with the twin challenges of the pandemic and the oil price collapse. These flows are expected to decline by about one-fifth in the SAR region this year.
International travel bans and school closures have been widespread in SAR economies. Public transport has also been closed in two-thirds of countries. Near-total lockdowns in several regional economies severely hindered mobility and impeded the delivery of essential services, Non-essential businesses have been closed in Pakistan, and airports have been shut for arrivals in Sri Lanka.
Despite the deterioration in fiscal positions, a number of commodity importers have announced stimulus packages (India, Pakistan, Poland, Thailand, Turkey). In addition, central banks in many commodity importers have enacted policy rate cuts.
Several central banks in SAR have also lowered policy interest rates, aided by an impending drop in inflation due to falling oil prices (Bangladesh, India, Pakistan, Sri Lanka). These monetary policy actions have been complemented with measures to provide liquidity to financial markets and banking systems in several economies. In SAR, India, Pakistan, and Bangladesh have announced fiscal, liquidity, and loan support measures, ranging from 3 to 10 % of GDP.
In Pakistan, measures also include additional spending on health care, cash transfers, and relief of utility payments. The median fiscal deficit in SAR is foreseen to widen from 5.4 % of GDP in 2019 to 6.9 this year.
COVID-19 Drives Broadest Collapse Since 1870
The swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction. According to Bank forecasts, the global economy will shrink by 5.2% this year. That will represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870, the Bank added.
The coronavirus pandemic inflicted a “swift and massive shock” that has caused the broadest collapse of the global economy since 1870 despite unprecedented government support, the World Bank.
The depth of the crisis will drive 70 to 100 people into extreme poverty – worse than the prior estimate of 60 million, she told reporters. And while the Washington-based development lender projects a rebound for 2021, there is a risk the second wave of outbreaks could undermine the recovery and turn the economic crisis into a financial one that will see a “wave of defaults.”
Economists have been struggling to measure the impact of the crisis they have likened to a global natural disaster, but the sheer size of the impact across so many sectors and countries has made it hard to calculate and made predictions about any recovery highly uncertain. Under the worst-case scenario, the global recession could mean a contraction of eight percent, according to the report.