April 12, 2020 (MLN): In its recent report, the World Bank has stated that the real GDP growth of Pakistan is projected to contract by 1.3 percent in FY20. Moreover, in the last four months of the fiscal year, the domestic and global economic activity is expected to slow down sharply.
Without any doubt, the outbreak of COVID-19 will impact growth beyond FY20. According to the report, the growth will remain muted at 0.9 percent in FY21 under the baseline scenario.
By fiscal year 2021-22, the growth is expected to reach 3.2 percent, it added.
On one hand, the inflation is expected to average 11.8 percent in FY20 and to gradually decline thereafter, whereas on the other, the current account deficit is projected to narrow to 1.9 percent in FY20.
The report further says that the imports in FY20 are likely to contract more than exports. While export growth is expected to remain negative in FY21, it is likely to rebound thereafter and reach 6.7 percent in FY22.
Similarly, imports are expected to recover slowly from FY22 onwards, as domestic industrial activities pick up.
Remittances are expected to contract by 6.5 and -6.0 percent in FY20 and FY21 respectively, due to lower growth in the Gulf Cooperation Council economies.
World Bank has further stated that the increased multilateral and bilateral flows are expected to be the main financing sources over the medium-term.
Moreover, the fiscal deficit is expected to remain elevated, at 9.5 and 8.7 percent of GDP in FY20 and FY21, respectively.
Revenue mobilization efforts will be negatively impacted by subdued domestic activity, expenditures will increase to contain the spread of COVID-19 and support the economy, the report added.
The fiscal deficit is expected to fall gradually to 6.0 percent of GDP by FY22 as the impact of the crisis tapers-off.
However, the public debt-to-GDP ratio is expected to increase and remain elevated over the medium-term, Pakistan’s exposure to debt-related shocks remaining high.
The poverty outlook for FY21 will depend critically on the ability of the informal off-farm sector to recover from the current crisis.
The duration of the crisis and the capacity of government interventions to protect investments in physical and human capital of the most vulnerable segments of the population will be important to prevent long lasting consequences.
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