Pakistan economic growth to remain at 0.5 percent: WB

The World Bank has warned Pakistan could face difficulties in repaying external loans, as WB expects Pakistan's growth rate to remain below potential at 0.5 percent this financial year.

The World Bank in its latest South Asia Economic Focus Beaten or Broken? forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 percent in 2020, after topping 6 percent annually in the past five years.

"The collapse of South Asian economies during COVID-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages," said Hartwig Schafer, World Bank Vice President for the South Asia Region.

"Immediate relief has dulled the impacts of the pandemic, but governments need to address the deep-seated vulnerabilities of their informal sectors through smart policies, and allocate their scarce resources wisely," he said.

Talking about Pakistan, WB said that the country's economic growth is projected to remain below potential, at 0.5pc for FY21 compared to over 4pc annual average in the previous three years to FY2019.

The World Bank, in its report, said that Pakistan could face difficulties in repaying its external loans. It said that the reemergence of the COVID-19 could further threaten the growth rate, while locusts and rains could also lead to malnutrition, with the worst possible increase in poverty, according to estimates.

The report said that Pakistan's real GDP growth (at factor cost) was estimated to have declined from 1.9pc in FY19 to -1.5pc in FY20, the first contraction in decades, reflecting the effects of Covid-19 containment measures that followed monetary and fiscal tightening prior to the outbreak.

However, the domestic economic activity is expected to recover with a gradual decline of COVID-19 cases and corresponding lifting of lockdown measures, but the near-term economic prospects are still subdued in the near future.

WB said that this projection is still highly uncertain and does not account for any significant inflation flare-ups or unexpected wave of Covid-19 cases that might require further widespread lockdowns.

The growth rate is expected to gradually recover but remains muted, given heightened uncertainty and the resumption of demand compression measures.

Meanwhile, the economy of neighboring India is expected to contract by 9.6 percent in the fiscal year that started in March 2020. Whereas, regional growth is projected to rebound to 4.5 percent in 2021. WB warned that as many as 115 million people could be pushed into extreme poverty this year due to the economic downturn caused by the coronavirus pandemic.

Forecasting worst recession in South Asia, the World Bank sees an increase in poverty in Pakistan over the next two years coupled with muted and uncertain economic recovery owing to the adverse impacts of Covid-19.

"In Pakistan, economic growth is projected to remain below potential, at 0.5pc for FY21 compared to over 4pc annual average in the three years to FY2019," said the bank in its latest South Asia Economic Focus report, a twice-a-year publication.

The economic growth is projected to remain below potential, averaging 1.3 per cent for FY21 and FY22, according to the report.

It said the projection, which is highly uncertain, is predicated on the absence of significant infection flare-ups or subsequent virus waves that would require further widespread lockdowns.

Real GDP growth is estimated to have declined from 1.9pc in FY19 to -1.5pc in FY20, the first contraction in decades, says report

Speaking ahead of the report's launch, Hartwig Schafer, World Bank's vice president for the South Asia region, said: "The collapse of South Asian economies during Covid-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages."

In response to a question, he said the bank did not publish Pakistan's poverty numbers for technical reasons, but increase in poverty rate was high like many other countries in the region.

The report said Pakistan's economy has been severely affected by measures taken to contain the pandemic. Economic activity contracted and poverty is likely to have risen in FY20, as monetary and fiscal policy tightening, earlier in the year, was followed by lockdowns.