January 9, 2020 (MLN): The World Bank recently released a report titled ‘Global Economic Prospects-2020’ to give a glimpse of what route the global economic growth would take during the year 2020.
The report also shed some light on the anticipated economic growth and performance of South Asian countries including Pakistan. According to the report, the growth in Pakistan is projected to languish at 3 percent or less through 2020 as macroeconomic stabilization efforts weigh on activity.
The report further stated that South Asia’s growth is estimated to have decelerated to 4.9 percent in 2019, substantially weaker than 7.1 percent in the previous year. The deceleration was pronounced in the two largest economies, including Pakistan, as monetary tightening caused a sharp slowdown in fixed investment and a considerable softening in private consumption.
In Pakistan, growth decelerated to an estimated 3.3 percent in FY2019, reflecting a broad-based weakening in domestic demand. Significant depreciation of the Pakistani rupee (the nominal effective exchange rate depreciated about 20 percent over the past year) resulted in inflationary pressures. Monetary policy tightening in response to elevated inflation restricted access to credit. The government retrenched, curtailing public investment, to deal with large twin deficits and low international reserves.
With regards to inflation, the World Bank said it has been mostly stable in the region on the back of weak domestic demand and broadly stable currency markets, with the notable exception of Pakistan
Moreover, the report said that Pakistan’s budget deficit rose more sharply than expected in FY2019 due to a shortfall in revenue collection, combined with a sizable increase in interest payments.
Nonetheless, macroeconomic adjustment in Pakistan, including a continuation of tight monetary policy and fiscal consolidation, is expected to continue. Growth is projected to bottom-out at 2.4 percent in FY2019/20. Thereafter, as macroeconomic conditions improve and structural reforms support investment, growth is projected to steadily advance, reaching 3.9 percent by FY2021/22.
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