The World Bank has forecast that about four million people will fall below the lower middle-income poverty line amid economic growth plummeting to just 0.4 per cent against a budgeted target of 5pc, reported Dawn.
In the meantime, the Asian Development Bank (ADB) has projected Pakistan’s economic growth plunging to 0.6 per cent from 6 per cent last year owing to the prevailing political crisis, flood-oriented economic losses, foreign exchange challenges and tighter macroeconomic policies at home and challenging external environment. The Washington-based leading agency in its flagship Pakistan Development Update (PDU) 2023 said, “In the absence of public transfers that cover income losses or mitigate the impact of higher prices, poverty measured at the lower middle-income poverty line (USD 3.65 per day 2017 PPP per capita) is projected to increase to 37.27 FY23, pushing an additional 3.9 million people into poverty as compared to FY22.”
It added, “The depth and severity of poverty have also increased, reflecting the overlapping impacts of multiple shocks and households’ lack of savings to mitigate short-term impacts”.
The World Bank’s GDP growth rate estimate at 0.4 per cent is down from its previous growth estimate of 2 per cent in January, Dawn reported.
It was not easy to write a report about Pakistan in such a critical time when so many things were happening amid a super focus on the IMF programme, exchange rate volatility and floods and so on but all these highlighted usual structural issues were behind the fresh numbers, said World Bank’s Country Director for Pakistan Najy Benhassine.
Benhassine also said, “The resolution of Pakistan’s economic crisis requires a commitment to sustained macro-fiscal and structural reforms,” adding that this was needed both to unlock fresh financing and avoid a balance of payments crisis and lay the foundation for a recovery of private investor confidence and higher growth over the medium term.
So, the urgency of the issues called for long-term changes to stabilise the economy in a time of uncertainty that affected not only Pakistan but also the rest of the world at the same time.
According to the research, a number of events–including the effects of flooding and import restrictions on production and labour incomes in industries like agriculture and the textile industry–have had a detrimental impact on impoverished households.
This also included the high food inflation, which had a negative impact on all households’ actual purchasing power and had particularly negative effects on poorer households, which lacked the savings necessary to maintain consumption despite rising costs. Also, a possible drop in international remittances had an effect on households.
“Downside risks to the outlook remain very high,” Adnan Ghumman, author of the report, noted politically-driven slippages in fiscal policy in the context of upcoming elections, constraints on foreign exchange liquidity and uncertainties around external funding inflows, rising levels of public debt, growing exposure of banks to the public sector, and political instability, as per a Dawn report.
He said that agriculture was affected by flooding and challenges acquiring essential inputs in the first half of 2022-2023, while large-scale manufacturing (LSM) shrank by 3.7 per cent as a result of tighter policy and import restrictions. As a result, the services sector has been hurt by rising costs and dwindling company and consumer confidence while inflation hit a multi-decade high in the first half of the year.
Despite efforts to reduce the current account deficit and consolidate, according to Ghumman, the country’s external situation deteriorated. The fiscal deficit rose in the first half of the fiscal year as a result of rising debt payment costs.
The macroeconomic picture remained uncertain and hinged on the successful implementation of crucial reforms due to the growing exposure of the banking sector to the sovereign in recent years, reported Dawn.
All estimates, according to the World Bank, are inextricably tied to the IMF programme, which stipulates that Pakistan should carry out and maintain structural and macroeconomic reforms because the nation faces numerous dangers from rising public debt levels and declining foreign reserves. This would ensure necessary additional disbursements and external finance to regain macro-stability and trust.
According to the research, the slower GDP growth was attributable to the effects of the summer of 2022’s exceptional flooding, declining confidence, import restrictions, belated fiscal tightening, and dampened private sector activity.
Over FY23, Pakistan faced devastating floods and increasing global commodity prices following Russia’s invasion of Ukraine, Dawn reported.