Pakistan to grow 3.4pc in FY21: World Bank

The World Bank on Thursday projected Pakistan's output growth at 3.4 per cent in the current fiscal year, which is revised upward from 1.4 per cent, considering enhanced economic activities.

The World Bank said that the growth further strengthened to 4 per cent in FY23 with the implementation of key structural reforms, particularly those aimed at sustaining the macroeconomic stability, increasing competitiveness and improving financial viability of the energy sector.

The 25-basis points policy rate hike in September 2021 by the State Bank of Pakistan (SBP), fiscal and monetary tightening are expected to resume in the current fiscal year, as the government refocuses on mitigating emerging external pressures and managing longstanding fiscal challenges, it said.

Inflation is projected to edge up in FY22 with the expected domestic energy tariff hikes and higher oil and commodity prices before moderating in FY23.

Poverty is expected to continue declining, reaching 4 per cent by FY23, the World Bank said, adding that the current account deficit is projected to widen to 2.5 per cent of GDP in FY23, as imports expand with higher economic growth and oil prices.

Exports are also expected to grow strongly after initially tapering in FY22, as the tariff reform measures gain traction supporting export competitiveness.

In addition, the growth of official remittance inflows is expected to moderate after benefiting from a Covid-19-induced transition to formal channels in FY21.

Despite fiscal consolidation efforts, the deficit is projected to remain high at 7 per cent of GDP in FY22 and widen to 7.1 per cent in FY23 due to the pre-election spending. The implementation of critical revenueenhancing reforms, particularly the general sales tax harmonisation, will support a narrowing of the fiscal deficit over time.

Public debt will remain elevated in the medium-term, as will Pakistan's exposure to the debt-related shocks.

This outlook assumes that the IMFEFF programme will remain on-track, the World Bank said. The report said despite repeated Covid-19 waves, Pakistan's economy recovered in FY21, amid effective targeted lockdowns and an accommodative monetary policy stance.

The economic growth is expected to ease in FY22 before strengthening again in FY23. However, the potential delays in the

IMF programme, high demand-side pressures, potential negative spillovers from the evolving situation in Afghanistan and more severe and contagious Covid-19 waves pose downside risks to the outlook.

Discussing challenges to the Pakistan economy, the World Bank said with the pandemic, the government has been focused on managing the repeated Covid19 infection waves, implementing a mass vaccination campaign, expanding its cash transfer programme, and providing accommodative monetary conditions to sustain economic growth.

"Grappling with the fourth Covid-19 wave, the government, as before, implemented micro lockdowns that successfully limited the infection spread, while permitting the economic activity to continue and; thereby, mitigating the economic fallout. While they have been accelerating, vaccination rates remain low," it said.

As of September 15, only around 10 per cent of the total population has been fully vaccinated. The 39-month IMFExtended Fund Facility (IMF-EFF) is likely to resume in FY22 with the 6th review mission expected in October 2021.