KARACHI: Pakistan’s economy is expected to grow by only two percent in the current fiscal year ending June 2023, the World Bank said on Thursday, with the slower growth reflecting, among other factors, damages by recent floods that have killed over 1,700 million and caused at least $30 billion in economic losses to the cash-strapped South Asian nation.
The latest assessment of the Pakistani economy was part of the World Bank’s October 2022 Pakistan Development Update: Inflation and the Poor.
“The slower growth will reflect damages and disruptions caused by catastrophic floods, a tight monetary stance, high inflation, and a less conducive global environment,” the bank said in a statement. “Recovery will be gradual, with real GDP growth projected to reach 3.2 percent in fiscal year 2024.”
The World Bank said poverty in the hardest-hit regions would likely worsen due to the recent flooding.
“Preliminary estimates suggest that – without decisive relief and recovery efforts to help the poor – the national poverty rate may increase by 2.5 to 4 percentage points, pushing between 5.8 and 9 million people into poverty,” the statement said.
“Macroeconomic risks also remain high as Pakistan faces challenges associated with a large current account deficit, high public debt, and lower demand from its traditional export markets amid subdued global growth.”
Najy Benhassine, the World Bank’s country director for Pakistan, said the floods were expected to have a "substantial negative impact" on Pakistan’s economy and on the poor, mostly through the disruption of agricultural production.
“The government must strike a balance in meeting extensive relief and recovery needs, while staying on track with overdue macroeconomic reforms. It will be more important than ever to carefully target relief to the poor, constrain the fiscal deficit within sustainable limits, maintain a tight monetary policy stance, ensure continued exchange rate flexibility, and make progress on critical structural reforms, especially those in the energy sector.”
The update also outlined potential strategies to manage the impacts of high inflation. Inflation in Pakistan is expected to reach around 23 percent in fiscal year 2023, reflecting flood-related disruptions to the supply of food and other goods, higher energy prices, and difficult external conditions, including tighter global monetary conditions. The high inflation will disproportionately impact the poor, the bank said.
“While relief measures are needed to cushion the impacts of flooding, it will be critical to ensure that these are targeted towards those most in need,” said Derek H. C. Chen, the author of the report.
“Pakistan has previously resorted to energy subsidies, but our analysis shows that such measures disproportionately benefit better-off households, while imposing unsustainable fiscal costs. Going forward, the priority should be to tame inflation through sound macroeconomic policies. These should be accompanied by measures to provide targeted relief to those hit hardest by rising prices, including through expanded social protection programs, and to address the distortions that discourage trade and productivity.”