The World Bank has issued a warning that Pakistan is likely to grapple with liquidity challenges in the medium term, primarily due to persistent trade deficits and limited access to external financing. The lender stressed that substantial and sustained economic reforms are imperative to address these issues effectively.
GROWTH PROJECTIONS AND CONCERNS:
- Growth Rate: The World Bank anticipates Pakistan’s growth prospects to remain constrained over the medium term if significant reforms are not undertaken. It projects a modest growth rate of 1.7%.
- Foreign Exchange Reserves: Despite recent successful completions of IMF Stand-By Arrangements and continued rollovers, Pakistan’s foreign exchange reserves are expected to remain low, hovering around 1.3 months of total imports.
- Fiscal Impact: Import management measures and stringent monetary and fiscal policies are anticipated to disrupt domestic supply chains, leading to subdued aggregate consumption and investment.
AGRICULTURE’S ROLE AND INDUSTRIAL OUTLOOK:
- Agricultural Sector: Agricultural output is expected to grow rapidly by 3% in FY24, driven by a higher estimated output of major crops like cotton and rice.
- Industrial Sector: Despite improved confidence, the industrial sector’s growth is projected to remain subdued due to tight macroeconomic policies and import management measures.
INFLATION AND CURRENT ACCOUNT DEFICIT:
- Inflation: Inflation is forecasted to remain elevated at 26% in FY24, primarily due to higher domestic energy prices. However, it’s expected to gradually moderate in subsequent years.
- Current Account Deficit: The current account deficit is expected to remain low at 0.7% of GDP in FY24, narrowing further in FY25 and FY26 due to ongoing import management measures.
POVERTY AND HUMAN DEVELOPMENT CONCERNS:
- Poverty Rate: No significant reduction in poverty is expected over the medium term, with around 40% of Pakistanis living below the poverty line.
- Human Development Outcomes: Lower-than-potential growth and high inflationary pressures, coupled with potential reductions in public spending on social sectors, may worsen human development outcomes.
