January 22, 2019 (MLN): In a United Nations (UN) report on World Economy, titled 'World Economic Situation and Prospects 2019', Pakistan has been named as one of the two countries whose economic outlook has visibly deteriorated over time, whereas its GDP growth rate has been forecasted to progressively slowdown in fiscal years 2018-19 and 2019-20, to 4.1% and 3.6%.
The report suggests that the economic outlook in Pakistan is challenging, and it encompasses significant downside risks.
While the UN acknowledges that domestic economic activity continues to be underpinned by robust private consumption, improvements in energy supply, and infrastructure initiatives of the China-Pakistan Economic Corridor, their report does not overlook that “Pakistan’s economy is facing severe balance of payment difficulties, amid large twin fiscal and current account deficits, a visible decline in international reserves and mounting pressures on the domestic currency.”
Sketching out the framework of Pakistan’s situation, the UN representative go on to point out that the level of public debt is also high—close to 70 per cent of GDP—with rising sustainability concerns, on top of which, the government is currently in talks with the IMF to secure further official assistance, its second approach to the Fund in the last five years.
“Against this backdrop, growth is projected to slow down markedly in 2019 and 2020 to below 4.0 per cent, after an estimated expansion of 5.4 per cent in 2018,” the report forecasts.
Emphasizing on the need for policy actions, UN reasons that the macroeconomic imbalances and financial fragilities pose significant risks of a further slowdown.
“To promote more sustainable medium-term growth, policymakers need to encourage much-needed infrastructure investment to alleviate chronic energy shortages while addressing external imbalances, particularly by promoting export growth.”
Turning to fiscal policies in South Asia, the report suggests that since the fiscal policies across the region have gradually moved to a more expansionary stance, fiscal deficits are projected to remain elevated and in order to avert sustainability concerns, medium-term consolidation plans are required in some economies, particularly those with a fragile tax base and elevated levels of debt.
In Pakistan’s case, they suppose that entering an IMF programme by 2019 would necessitate a sharp fiscal consolidation.
In addition to this, the report has estimated Pakistan’s Consumer Price Inflation to increase to 7.3% by the end on FY19 before dropping back to 6.1% by the end of FY20.
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