FeaturedNationalVOLUME 18 ISSUE # 24

Pakistan still reeling from last year’s floods

The devastating floods and slowdown in the global growth rate are projected to further slash Pakistan’s economic growth to 2pc in the current fiscal year. Inflation in the country is at the highest level since the 1970s. Besides the economy, high prices and floods, Pakistan faces worst political instability, which hampers its ability to address national issues.

The most concerning aspect is that Pakistan’s ability to retain and earn dollars is depleting fast, which not only raises concerns about its ability to pay foreign debt but also puts pressure on the local currency and adds to inflation. Its foreign reserves are decreasing rapidly while its remittances are also falling at a time when exports remain stagnant and are projected to decrease in the coming months.

However, there are some positives. The Pakistani currency has stabilized after hitting a new low against the US dollar in recent weeks. The improvement followed the State Bank of Pakistan (SBP)’s announcement of a $30 million increase in foreign exchange reserves, reaching $4.46 billion by the week ending April 20. The surplus supplies of US dollars in the interbank market, accompanied by the central bank’s purchase of the excess reserves, led to a higher supply compared to the demand for foreign currency. Consequently, exporters complied with the central bank’s directive to sell their foreign currency holdings by April 30, to avoid monetary penalties. The currency’s recent improvement can be attributed to hopes of the International Monetary Fund (IMF) resuming its loan programme worth $7 billion for Pakistan.

However, remittances sent home by overseas workers dropped by 9.5pc to $2 billion in February 2023, year-on-year, as exchange rate fluctuations, economic uncertainties, and lack of trust in the system continued to encourage the use of illegal channels. According to data released by the State Bank of Pakistan (SBP), remittances stood at $2.2 billion in the same month of the previous year. On the other hand, month-on-month, these inflows increased by 4.9pc compared to $1.9 billion recorded in January. Remittances for the first eight months (July-February) of the fiscal year 2022-23 were recorded at $17.99 billion, showing a fall of 10.8pc compared to $20.18 billion in the same period of FY2022.

Inflation increased by 0.15pc on a weekly basis while it reached a record-high of 46.82 percent on an annual basis. In the last week, 21 essential commodities became expensive and seven became cheaper in the country, while the prices of 23 remained stable. According to the weekly inflation report released by the Pakistan Bureau of Statistics (PBS), during the week ending on April 27, people earning more than Rs44,175 per month were the most affected by inflation as its rate stood at 48.23 percent for them.

According to the World Bank, Pakistan is facing difficult economic conditions and the recent worst floods and political uncertainty are the main reasons for it. It especially mentioned the inflation rate of 24.5pc in December which was the highest since the 1970s. From June to December the value of the rupee fell by 14pc against the dollar. Climate intensity could affect the supply of food and essential goods while infrastructure and agricultural production are also expected to be damaged, it warned in its latest report.

The global financial institution said global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine. Given fragile economic conditions, any new adverse development—such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic, or escalating geopolitical tensions—could push the global economy into recession. This would mark the first time in more than 80 years that two global recessions have occurred within the same decade, warned the Global Economic Prospects.

It projected the global economy to grow by 1.7pc in 2023 and 2.7pc in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95pc of advanced economies and nearly 70pc of emerging market and developing economies. Over the next two years, per-capita income growth in emerging markets and developing economies is projected to average 2.8pc—a full percentage point lower than the 2010-2019 average. In Sub-Saharan Africa—which accounts for about 60pc of the world’s extreme poor—growth in per capita income over 2023-24 is expected to average just 1.2pc, a rate that could cause poverty rates to rise, not fall.

Growth in advanced economies is projected to slow from 2.5pc in 2022 to 0.5pc in 2023. Over the past two decades, slowdowns of this scale have foreshadowed a global recession. In the United States, growth is forecast to fall to 0.5pc in 2023—1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970. In 2023, euro-area growth is expected at zero percent—a downward revision of 1.9 percentage points. In China, growth is projected at 4.3% in 2023—0.9 percentage point below previous forecasts. Excluding China, growth in emerging markets and developing economies is expected to decelerate from 3.8pc in 2022 to 2.7pc in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.

By the end of 2024, GDP levels in emerging and developing economies will be roughly 6pc below levels expected before the pandemic. Although global inflation is expected to moderate, it will remain above pre-pandemic levels. The report offers the first comprehensive assessment of the medium-term outlook for investment growth in emerging markets and developing economies. Over the 2022-2024 period, gross investment in these economies is likely to grow by about 3.5pc on average—less than half the rate that prevailed in the previous two decades. The report lays out a menu of options for policy makers to accelerate investment growth.

“The crisis facing development is intensifying as the global growth outlook deteriorates,” said World Bank Group President David Malpass. “Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change.”

The World Bank forecast has created concerns all over the world about jobs. As the economy will also slow down in Pakistan, it will badly affect the job market.