Growth rate to recover to 4% in FY2021: WB report

WASHINGTON: South Asia remained the fastest growing region in the world despite moderated from 7.2 per cent in 2017 to 6.9 per cent in 2018, along with the deceleration of growth in the rest of the world, said a report of the World Bank.

The Gross Domestic Product (GDP) growth of Pakistan is likely to moderate for the next two years due to measure taken to correct macroeconomic imbalances, however, the poverty reduction would be continued at a slower pace, the report entitled “South Asia Economic Focus, Exports Wanted” said.

Pakistan’s GDP growth is expected to fall to 3.4 per cent in the fiscal year 2019 from 5.8 per cent in FY2018, and to 2.7 per cent in FY2019-20.

The growth is expected to recover to 4.0 per cent in the fiscal year 2021 after an improvement in macroeconomic conditions and implementation of a package of structural reforms in fiscal management and competitiveness.

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“The current account and the fiscal deficits rose to 6.1 and 6.5 (including grants) per cent respectively. The new government took steps to address these imbalances, but outcomes by mid-year suggest that further adjustments will be necessary.”

“On the external front, the current account deficit reached USD 8.8 billion (3.3 per cent of GDP) at end February 2019, compared to USD 11.4 billion (3.7 per cent of GDP) the year before. Overall imports contracted by 1.6 per cent (y-o-y) but exports also declined by 0.1 per cent (y-o-y) in spite of the exchange rate depreciation.”

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The report said that international reserves stood at $6.6 billion US dollar (or 1.3 months of imports) by mid-January which was increased to USD 8.1 billion (or 1.6 months of imports) by March 8 – 2019 after ‘short term financing from the Saudi Arabia and the United Arab Emirates (UAE) while further financing from these countries is expected.” Meanwhile, the Pakistani government continued to negotiate a support package with the International Monetary Fund (IMF).

The report observed, “Growth is projected to decelerate to 3.4 per cent in the fiscal year 2019 and 2.7 per cent in the fiscal year 2020, as the government tightens fiscal and monetary policies. While domestic demand growth will slow down immediately, net exports will only increase gradually.”

“The trade deficit is projected to remain elevated during FY19, but to narrow in FY20 and FY21 as the impacts of currency depreciation, domestic demand compression, and other regulatory measures to curb imports set in,” it said.