World Bank projects GDP growth at 1.3pc for FY2021

ISLAMABAD: The World Bank on Wednesday projected Pakistan’s GDP growth at 1.3 percent for the current fiscal year of 2020/21 with the economy severely affected by coronavirus lockdown that leads to increase in poverty.

“With the lifting of lockdown measures, the economy is showing signs of a fragile recovery,” the World Bank said in a report on South Asia. “Growth is expected to gradually strengthen but remains muted in the medium-term. Fiscal deficit and debt levels are projected to remain elevated but to gradually improve. Risks to the outlook include new waves of COVID-19 infections and delays in the implementation of critical structural reforms.”

The government had envisaged GDP growth target at 2.1 percent while the State Bank of Pakistan had projected around 3 percent growth rate.

The World Bank said in Pakistan growth is expected to reach 1.3 percent in the fiscal year ending June 2021, slightly better than the January forecast. However, the recovery remains fragile, as the forecast is predicated on the absence of significant COVID-19. Private consumption will continue to strengthen, aided by record official remittance inflows. Investment is likely to continue recovering, as machinery imports and cement sales recorded double-digit growth rates mid-year and business confidence indexes exceeded pre-COVID levels by December 2020. Informal workers should gradually return to work, so output growth is expected to recover only slowly, to an average 2.2 percent over FY21-23.

Fiscal consolidation efforts will resume in 2021, though the deficit will remain elevated at 8.3 percent of GDP, in part due to arrears settlements. Revenue mobilisation should bring the deficit down in the medium term.

Countries with high debt indicators but not in immediate danger of debt distress (Pakistan and Bhutan). In Pakistan, the policies and reforms implemented under an IMF-supported program prior to the COVID-19 shock started to reduce economic imbalances and set the conditions for improving economic performance. The program was interrupted for almost a year to allow greater social and health spending to contend with the epidemic but is back on track.

Pakistan is a commendable example of a government that kept its lines of communication open so it could engage with creditors throughout the crisis, which may enable the country to come out of the crisis quicker than it otherwise could. “Nonetheless, Pakistan’s debt is rising and remains a source of vulnerability,” the World Bank said.

Inflation is expected to decline slightly in 2021 with improvement in goods’ transport bottlenecks that had been disrupted following the lockdowns in various countries. This is particularly so for Pakistan and Bhutan. Oil prices have recovered their pre-COVID levels, and Brent crude oil prices are expected to remain at around $60/barrel over the forecast period.

Other risks to the outlook are less likely but nonetheless palpable. While textile and garments exports have been recovering, they are vulnerable to new waves of COVID-19 in buyer countries, affecting Bangladesh the most but also Pakistan and India. New variants of the virus could thwart plans by Bhutan and Nepal to gradually open tourism or significantly expand it in Maldives and Sri Lanka if demand remains subdued.

Prospects of an economic rebound in South Asia are firming up as growth is set to increase by 7.2 percent in 2021 and 4.4 percent in 2022, climbing from historic lows in 2020 and putting the region on a path to recovery.

But growth is uneven and economic activity well below pre-COVID-19 estimates, as many businesses need to make up for lost revenue and millions of workers, most of them in the informal sector, still reel from job losses, falling incomes, worsening inequalities, and human capital deficits, says the World Bank in its twice-a-year-regional update.

The outlook for Bangladesh, Nepal, and Pakistan has also been revised upward, supported by better than expected remittance inflows: Bangladesh’s gross domestic product (GDP) is expected to increase by 3.6 percent in 2021; Nepal’s GDP is projected to grow by 2.7 percent in the fiscal year 2021-22 and recover to 5.1 percent by 2023; Pakistan’s growth is expected to reach 1.3 percent in 2021, slightly above previous projections.

South Asia, which grapples with high stunting rates among children and accounts for more than half of the world’s student dropouts due to COVID-19, needs to ramp up investments in human capital to help new generations grow up healthy and become productive workers. Noting that South Asia’s public spending on healthcare is the lowest in the world, the report also suggests that countries further invest in preventive care, finance health research, and scale up their health infrastructure, including for mass and quick production of vaccines.

“We are encouraged to see clear signs of an economic rebound in South Asia, but the pandemic is not yet under control and the recovery remains fragile, calling for vigilance,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “Going forward, South Asian countries need to ramp up their vaccination programs and invest their scarce resources wisely to set a foundation for a more inclusive and resilient future.”