According to a report released by World Bank, Pakistan’s GDP growth is projected to slow down to 3.4 percent in fiscal year 2018-19, from 5.8 percent a year before, and to 2.7 percent in FY2019-20, reflecting a broad-based weakening in domestic demand.
Domestic demand is expected to contract while at the same time export growth will be gradual, stated the report, adding that the agriculture and industrial sectors will grow less in these fiscal years.
Remittances flows are likely to support the current account balance next year, according to the report. A more stable external environment will also support a pickup in economic activity starting from 2021.
“In Pakistan, external account pressure reduced international reserves to USD 6.6 billion (1.3 months of goods and services import coverage) by mid-January 2019. With short-term financing from the Kingdom of Saudi Arabia, the United Arab Emirates and China, international reserves increased to USD 10.5 billion (2.0 months of goods and services import coverage) at the end of March. Meanwhile, the government continues to negotiate a support package with the International Monetary Fund,” the report stated.
“The current account deficit continued to widen but stabilized over the course of last year and it stood at 5.2 percent of GDP in the fourth quarter of 2018. The current account deficit reached 8.8 USD billion (3.3 percent of GDP) at the end of February 2019, compared to 11.4 USD billion (3.7 percent of GDP) the year before.”
Growth is expected to recover to 4% in the 2021 fiscal year as structural reforms take effect and macroeconomic conditions improve.
“Pakistan’s growth must be driven by investment and productivity, which will put an end to the boom and bust cycles that affect the country every few years,” said Illango Patchamuthu, World Bank Country Director for Pakistan. “It is entirely possible for Pakistan to transform its regulatory environment and reduce the cost of doing business. On the revenue front, reforms to improve tax administration and widen the tax base are critical. Over the adjustment period and beyond, actions outlined in the recently announced Ehsaas Program can protect the poor and vulnerable through social safety nets and safeguarding public spending on health and education.”