Pakistan's economy to grow 2.6% this year: ADB

[Shahzaz ud din]

Pakistan's economy to grow 2.6% this year: ADB
By Shahbaz Rana
Published: April 4, 2020
TWEET EMAIL

PHOTO: AFP

ISLAMABAD: The economic growth in Pakistan will fall to 2.6% this year as economic stabilisation constrains domestic demand, cotton output stagnates and coronavirus outbreak takes its toll, according to a new report of the Asian Development Bank (ADB).

The Manila-based lending agency has called on Pakistan to strengthen social protection in the wake of spread of coronavirus, underlining that social-sector development has not kept pace with growing needs.

Higher spending on social protection, including the Ehsaas programme, will be crucial in responding to the Covid-19 and the serious implications it may have for poor and vulnerable segments of the population.
The Asian Development Outlook – a biannual flagship publication – shaved only 0.2% off Pakistan’s economic growth on account of adverse impact of the coronavirus. About four months ago, the ADB had predicted Pakistan’s economy would grow by 2.8%.

At a growth rate of 2.6%, Pakistan will be the sixth slowest growing economy in South Asia, trailed by Sri Lanka and the Maldives only.

The ongoing Covid-19 outbreak would pose a downside risk to growth prospects as it further dampened consumer demand and as private businesses were temporarily shut down in efforts to control the pandemic, noted the report.

The lender said weaker demand under Covid-19 could adversely affect exports, but on balance exports should strengthen thanks to policy stability, improvement in ease of doing business and lagged effects of currency depreciation.

“Economic growth in Pakistan is expected to slow down to 2.6% this year due to ongoing stabilisation efforts, slower growth in agriculture and the impact of the Covid-19 outbreak, before recovering to 3.2% in 2021,” said the ADB.

Leaving aside external upheaval, growth in Pakistan would slow down as agriculture stagnated, notably affecting cotton output and as stabilisation efforts constrained domestic demand, it added. The intended correction of macroeconomic imbalances in Pakistan should restore confidence in the economy and bring later benefits, the bank said.

Agriculture is expected to see slow growth following the worst locust infestation in over two decades damaged harvests of cotton, wheat and other major crops. Modest growth is expected in some export-oriented industries such as textile and leather. However, large-scale manufacturing, which provides over half of industrial production, will likely contract due to currency depreciation that increased production costs for some industries and forced them to raise their prices.

Growth is expected to accelerate to 3.2% in fiscal year 2020-21, driven by a rebound in investment as macroeconomic imbalances are corrected, currency depreciation is contained and the locust infestation subsides.

Investment may also receive a boost from the implementation of critical structural reforms to improve energy production and distribution, and the overall business climate.

The ADB has placed significant emphasis on strengthening Pakistan’s weaker social protection to offset the impact of the pandemic.

Spending on social development had not kept up with the growing need and the Human Development Report 2019 ranked Pakistan at 152 among 189 economies, said the ADB.

Health outcomes remain poor, featuring one of the highest maternal mortality rates in the region and the third highest child stunting rate in the world. An estimated 23 million children are out of school. It said limited employment opportunities and high out-of-pocket health care expenditure routinely locked people in poverty and all too often inflicted economic shocks that dragged them down into it.

Over 63% of the population is under the age of 30, and gaps in education and technical and vocational skills mean that significant efforts are needed to absorb the sizable incoming labour force effectively.

Against a backdrop of slow growth, fiscal consolidation and monetary tightening, a comprehensive social protection strategy is crucial to promote inclusive growth and protect the most vulnerable.

Inflation is forecast to decelerate to 8.3% in the next fiscal year with the central bank expected to take further policy actions to manage inflation as well as boost economic activity, according to the ADB. For this year, it has projected 11.5% inflation as currency depreciation “makes itself felt”.”

The current account and fiscal deficits will narrow further. The fiscal deficit is expected to narrow to 8% of GDP in this fiscal year, down from last year’s level but higher than the government’s target.

The current account deficit is expected to continue narrowing down to 2.8% of GDP in this fiscal year with a reduction in trade deficit resulting from currency depreciation, imposition of regulatory duties to contain import demand, and continued recovery in workers’ remittances

 

[Shahzaz ud din]

World Bank sees Pakistan’s economic growth sliding to 1%
By Shahbaz Rana
Published: April 4, 2020
TWEET EMAIL

The logo of the World Bank. PHOTO: AFP

ISLAMABAD:

Pakistan’s economic growth may slip to nearly 1% — the situation that the country went through at the time of the last severe global financial crisis – because of the adverse effects of the novel coronavirus outbreak on the manufacturing and services sectors, the World Bank said on Friday.

The global lender also said the country’s budget deficit would further widen by 2% of its GDP. This means that the budget deficit gap between income and expenditure will be close to 10% of GDP as against the pre-coronavirus estimates of 7.6%.

The Washington-based lender on Friday approved a $200 million loan to support the country’s efforts against the viral outbreak and said it was in talks to divert up to $1 billion more out of the $6.5 billion already reserved for Islamabad.

The local office of the WB shared a fresh economic assessment in a video conference, addressed by Country Director Illango Patchamuthu and his team.

Shabih Ali Mohib, the WB programme leader on equitable growth, finance and institutions, said the current situation caused by the pandemic would continue for over next six months, meaning that the last quarter of the ongoing fiscal year (April-June) 2019-20 and the first quarter of the next fiscal year 2020-21 would be affected.

“Due to the steep decline in economic activity since March, we are revising our real GDP growth projection to 1.1% of GDP, from an earlier projection of 2.4% for this fiscal year,” he added.

The drivers for this slowdown are the services and the manufacturing sectors that contribute 80% to total economic activities.

Shabih further said the WB expected the COVID-19 pandemic to abate over the next six months and a gradual recovery thereafter over the rest of the year.

“Therefore, we have revised our projection for fiscal year 2020-21 to only 0.9%, from the earlier 3%.”

It will be lowest economic growth rate in over a decade. The last time was in the fiscal year 2008-09 when the country had recorded a growth rate of only 0.4% after the world was hit by a severe financial crisis.

The WB’s economic impact estimates are steeper than the Asian Development Bank (ADB) and the official projections. Despite the outbreak, the ADB projected the country’s economic growth at 2.6% in its latest publication also released on Friday.

Shabih noted there would be an increase of 2% of the GDP in the fiscal deficit because of a reduction in revenue collection and additional fiscal needs to reach out to people being affected by the outbreak.

WB Country Director Illango said the WB had a $9 billion portfolio in Pakistan and $6.5 billion of it remained as undisbursed balance.

This money is meant for 49 projects that are extended till 2025. The WB is in talks to divert $600 million to $1 billion from the existing envelope for emergency health purchases, mitigation of impacts on social and economic disruptions and to meet the additional needs of some ongoing projects, the country director said.

“We are confident that the money will be moved quickly and will be placed where it can be effectively utilised.”

Amjad Khan, the WB official dealing with the social safety net programme, said the government was providing cash assistance to the tune of $525 million in the next four months and new people were being added to the social safety net.

To a question about transparency in disbursements, Amjad said the data collected for the targeted aid was almost 10 years old and proxies were used to disburse money in the past.

“The data has not been updated and is old data, increasing inclusion and exclusion error chances,” he added.

The government has decided to go beyond the Benazir Income Support Programme (BISP) and place some filters like assets and expenditures by using the National Database and Registration Authority (NADRA) database.

The survey initiated in 2016 remains incomplete. “If we had the NSER [National Socio-Economic Register] data, things would have been much better,” said Amjad. There were administrative problems in completing the exercise that has been further delayed due to the current shutdown-like situation across the country.

To a question, Illango said the WB and the International Monetary Fund (IMF) had made a request for debt relief for International Development Association (IDA) countries that would be discussed during the virtual spring meetings of the two lenders.

Pakistan has asked the WB for the criteria for eligibility for debt relief and associated actions. “These are early days and we are working through an appropriate framework for any debt relief,” he added.

The WB Board of Executive Directors has approved a $200 million package to help Pakistan take effective and timely action to respond to the Covid-19 outbreak by strengthening the country’s national healthcare systems and mitigating socioeconomic disruptions.

Illango said the $200 million loan would be utilised for the purchase of medical equipment ($158 million), emergency cash assistance and distance learning to support children staying at home.

This support will also draw an extra $38 million from eight existing projects for urgently needed medical equipment and supplies. “This money has been given to purchase face masks and ventilators and the supplies have arrived very quickly at hospitals,” said country director added.


Read more: Budget deficit , Covid-19 , GDP

 

[Baba_Yaga]

I believe the entire world will see negative growth. These predictions are very optimistic. I would be surprised to see anyone except remote pacific islands see positive growth.

 

[DrasticMeasure]

Time is never on Pakistan's side unfortunately. Just when things were getting better Covid happened. I wish my pakistani brothers the best of luck in getting back to high growth rate. I think Pakistan has potential. Very very strong potential.

 

[Baba_Yaga]

Time is never on Pakistan's side unfortunately. Just when things were getting better Covid happened. I wish my pakistani brothers the best of luck in getting back to high growth rate. I think Pakistan has potential. Very very strong potential.

We need some luck as well. We were already going downhill due to twin impacts of demonitization and poorly rolled out GST, just then this hit.

 

[DrasticMeasure]

We need some luck as well. We were already going downhill due to twin impacts of demonitization and poorly rolled out GST, just then this hit.

We have been going downhill since 2016. From 8.5% to 5% to 2%. We were going downhill even before Covid strikes. But Covid will surely put SA another 5-7 years behind in achieving middle income status countries.

 

[Gandhi G in da house]

We have been going downhill since 2016. From 8.5% to 5% to 2%. We were going downhill even before Covid strikes. But Covid will surely put SA another 5-7 years behind in achieving middle income status countries.

And by how many years will it set China behind ? The producer and distributor of the virus ?

 

[ali_raza]

it will all be reversed
our economy will get healthy benefits from covid
once we have stablized out trade deficit which is projected to be even this year thanks to covis our imports r shrinking fast.
we were never export based economy anyway
next step is food shortages coming in whole world while we r going to have good crop of wheat this year cos not much heavy rain was recorded this year despite last year heavy rains which devastated the agri sector
anyway we will see a surge in deman of wheat and its price worldwide
now as we will be recovering from this virus our industry will already be having a healthy development because government already lowering alote of taxes
everyone is excited to come back to business
our internal economy is ready to boom but this time it will not be import based rather self sustaining
i m hopeful for future
while things look bleak for india and bangladesh

 

[American Pakistani]

Time is never on Pakistan's side unfortunately. Just when things were getting better Covid happened. I wish my pakistani brothers the best of luck in getting back to high growth rate. I think Pakistan has potential. Very very strong potential.

Yup I was thinking along the same lines. From bad dreams to nightmare. Time in fact was never on Pakistans side. First soviet war, then sanctions presseler amendment, then war on terrorism and now this.

But hopefully we'll come out strong from this too.