ISLAMABAD: THE world Bank painted a bleak economic picture Pakistan in its biannual report, warning that more than 10 million people are at risk of falling into poverty in the country without money. The Washington-based lender's apprehension comes from a slow economic growth rate of 1.8 percent, coupled with rising inflation, a surprising 26 percent in the current fiscal year.
The World Bank's biannual report on Pakistan's Development Prospects painted a bleak economic picture, indicating that the country will miss almost all major macroeconomic targets.
The international lender said the country is expected to fall short of its primary budget target, remaining in deficit for three consecutive years, contrary to International Monetary Fund stipulations mandating a surplus.
Sayed Murtaza Muzaffari, lead author of the report, said that despite a still nascent economic recovery based on the advice, poverty alleviation efforts remain insufficient.
Economic growth is expected to stagnate at a paltry 1.8 percent, keeping the poverty rate at around 40 percent, with approximately 98 million Pakistanis already struggling with poverty, the World Bank Report he said.
The report highlighted the vulnerability of those just above the poverty line, with 10 million individuals at risk of falling into poverty.
The report states that the poor and vulnerable are likely to have benefited from windfall gains in agricultural production, but these gains have been offset by continued high inflation and limited wage growth in other sectors that employ many of the poor, such as construction, commerce, and transportation.
Salaries of daily workers increased by just five per cent in nominal terms during the first quarter of this fiscal year when inflation was above 30 per cent, he said.
The persistent cost of living crisis, coupled with rising transport costs, could potentially lead to an increase in the number of children out of school and delays in medical treatment, especially for the most disadvantaged families, the World Bank warned.
At the same time, he added that food security continues to be a concern in some parts of the country.
Among the 43 rural districts of Khyber Pakhtunkhwa, Sindh and Balochistan, many of which were affected by the 2022 floods, the prevalence of acute food insecurity is also expected to increase from 29 percent to 32 percent in the third quarter of this fiscal year. , the report said.
“Poverty reduction is expected to stagnate in the medium term due to weak growth, low real labor income and persistently high inflation,” the World Bank said.
Chronic inflation in the absence of substantial growth, coupled with political uncertainty, could cause social discontent and have negative impacts on well-being, the global lender warned.
“Despite some recovery, Pakistan's economy remains under pressure, with low foreign reserves and high inflation. Political uncertainty remains high and economic activity is subdued, reflecting strict fiscal and monetary policy and import controls,” the Bank said Worldwide.
The Washington-based lender said growth is expected to remain below potential, with greater social vulnerability and limited poverty reduction in the medium term.
“Financial sector risks, political uncertainty and stronger external headwinds pose significant risks to the outlook,” he added.
Pakistan's current account deficit (CAD) narrowed to $0.8 billion in the first half of the current fiscal year from $3.6 billion in the first half of the last fiscal year due to import controls, to reduced domestic demand and lower global raw material prices, the report said.
Meanwhile, official remittances fell 6.8 percent year on year in the first half of the current fiscal year due to exchange rate rigidity at the beginning of the year.
Also for the next fiscal year, the World Bank projected an inflation rate of 15 percent.
“Inflation is forecast to remain elevated at 26 percent in FY24 due to higher domestic energy prices, with little respite for poor and vulnerable households with depleted savings and lower real incomes,” it said.
The World Bank said the fiscal deficit is expected to widen to 8 percent of GDP or 8.5 trillion rupiah this fiscal year due to higher interest payments, which is much higher than the official target of 6.5 percent.
It stated that the deficit will only gradually decrease in the medium term as interest payments decrease and fiscal consolidation measures are implemented.
Contrary to the IMF target of a primary budget surplus of Rs 400 billion, the World Bank has stated that there will be a primary deficit of 0.1 percent of GDP this fiscal year. It also projected the deficit for the next two fiscal years.
Pakistan's economy is expected to grow just 1.8 percent in the current fiscal year ending June 2024, while the official target is 3.5 percent, the World Bank said.
Also for the next fiscal year, the World Bank only projected an economic growth rate of 2.3 percent, which is still lower than the population growth rate of 2.6 percent.