The World Bank (WB) on Tuesday said Pakistan required committed efforts for sustainable macro-fiscal and structural reforms to overcome the economic challenges confronted by the country.
“This is needed both to unlock fresh financing and avoid a balance of payments crisis and lay the foundation for a recovery of private investor confidence and higher growth over the medium term,” WB Country Director for Pakistan Najy Benhassaine said while releasing the latest “Pakistan Development Update: Recent Economic Developments, Outlook and Risks.”
The report noted that the outlook and progress with the International Monetary Fund (IMF) – Extended Fund Facility (EFF) Programme depended heavily on securing new official external financing, with ongoing delays contributing to a further deterioration in confidence.
To facilitate new external financing, regain stability and establish a base for medium-term recovery, it said the government must maintain overall sound macroeconomic management, including a flexible exchange rate and controlling inflation through the adoption of an appropriate monetary policy stance; increase revenues and rationalize expenditure (including reducing untargeted energy subsidies); and implement trade and private sector reforms to support improvements in investment, competitiveness and productivity.
Pakistan’s output growth could gradually recover in fiscal years 2024 and 2025, according to the report, if the required reform agenda was rapidly implemented with strong political ownership and adequate eternal support.
“Growth will remain below potential, however, while external adjustment continues,” it said adding due to higher energy and food prices, inflation was projected to rise to 29.5 percent in FY2023, but moderate as global inflationary pressures decreased.
With dampened imports, it said the current account deficit was projected to narrow to 2.0 per cent of the Gross Domestic Product (GDP) during the current fiscal year but widened to 2.1 and 2.2 per cent of the GDP in FY24-FY25 respectively as import controls eased.
“The fiscal deficit, excluding grants, is projected to narrow to 6.7 per cent of the GDP in FY23 and further over the medium term as fiscal consolidation takes hold,” the report said.
The WB report said Pakistan’s economy was expected to grow by only 0.4 per cent in the current fiscal year ending June 2023.
Over FY23, it said Pakistan faced devastating floods and increasing global commodity prices following the Russia-Ukraine conflict.
The WB experts also mentioned reasons behind the depletion of foreign exchange reserves and undermining of progress with planned fiscal consolidation, adding “Rising macro risks and tighter global liquidity conditions curtailed Pakistan’s access to the international capital market.”
The report also mentioned the corrective measures, taken by the incumbent government to improve the national economy, like reducing subsidy spending, increasing energy tariffs and allowing the exchange rate to float leading to a sharp depreciation and alignment between the interbank and open rates.
