FeaturedNationalVOLUME 17 ISSUE # 13

Pakistan’s robust recovery

Two recent international reports point out Pakistan’s impressive performance on the economic front after pandemic interruptions. The forecasts for Pakistan are encouraging at a time when the rapid spread of the Omicron COVID-19 variant is badly affecting earlier projections of a rapid world recovery.

The United Nations has forecast Pakistan’s GDP growth rising to 3.9pc, while the World Bank projects Pakistan’s GDP to rise at 3.4pc in the current fiscal year and at 4pc in 2022-23. The forecasts for Pakistan are especially encouraging as the world still reels under adverse effects of the pandemic. The report predicts that developing countries will take a greater long-term hit than wealthier nations. Africa, Latin America and the Caribbean are projected to see significantly lower growth, compared to pre-pandemic projections, leading to more poverty and less progress on sustainable development and climate action. According to the UN, the number of people living in extreme poverty is projected to remain well-above pre-pandemic levels, with poverty projected to increase further in the most vulnerable economies: in Africa, the absolute number of people living in poverty is projected to rise through 2023. In contrast, the economies of richer countries are expected to almost recover by next year fully.

In its flagship World Economic Situation and Prospects report, the United Nations says Pakistan’s economy remains on a relatively robust recovery path. “After an economic expansion of 4.5pc in 2021, GDP growth is projected at 3.9pc in 2022, driven by private consumption, record-high remittances, and fiscal support,” the annual report said. Overall, the report shows that the rapid spread of the Omicron COVID-19 variant has put the brakes on a rapid world recovery, counteracting signs of solid growth at the end of last year. The report cites a cocktail of problems that are slowing down the economy: New waves of COVID-19 infections, persistent labor market, lingering supply-chain challenges and rising inflationary pressures.

The slowdown is expected to carry on into the next year. After an encouraging expansion of 5.5pc in 2021 – driven by strong consumer spending and some uptake in investment, with trade in goods surpassing pre-pandemic levels – global output is projected to grow by only 4pc in 2022 and 3.5pc in 2023. It recommended that the special financial measures put in place by many governments since the pandemic – such as bailouts, improved social protection, and job support – should stay in place to ensure a strong recovery. However, considering rising inflation, several central banks have begun to unwind their extraordinary monetary response to the crisis, it noted. The UN observed that many low-income developing countries were facing unsustainable external debt burdens, amid sharp interest rate rises. Additional borrowing during the pandemic and increasing debt-servicing costs have put many of them on the verge of a debt crisis. These countries are in urgent need of further and coordinated international support for debt relief. Employment levels are projected to remain well-below pre-pandemic levels during the next two years, and possibly beyond. Labour force participation in the United States and Europe remains at historically low levels, as many who lost jobs or left the labor market during the pandemic have not yet returned. These shortages in developed economies are adding to other pressures, such as inflation, and supply-chain challenges. At the same time, employment growth in developing countries remains weak, amid lower vaccination progress and limited stimulus spending. Africa, Latin America, the Caribbean and Western Asia are projected to see a slow recovery of jobs. In many countries, the pace of job creation is not enough to offset the earlier employment losses.

Pakistan’s remarkable performance also surprised the World Bank, which said structural reforms had helped enhance export competitiveness and improve the financial viability of the power sector. It especially noted Pakistan’s improving domestic demand, record-high remittance inflows, a narrow targeting of lockdowns, and accommodative monetary policy. The WB, in its Global Economic Prospects report 2022, has revised growth projections for the region since June 2021, because of “better prospects in Bangladesh, India and Pakistan.” It projects Pakistan’s economy to grow at 3.4pc in the current fiscal and at 4pc in 2022-23. It forecasts that growth in the South Asian region will accelerate to 7.6pc in 2022, as pandemic-related disruptions fade, before slowing to 6pc in 2023. Global economic growth, however, will slow down to 4.1pc this year from an estimated 5.5pc in 2021, the report adds, warning that “Omicron-related economic disruptions could substantially reduce growth” to as low as 3.4pc. The report points out that real interest rates in Pakistan dropped precipitously during 2020 and remained negative through 2021. It notes that both Bangladesh and Pakistan saw their goods trade deficit widen to record levels on strong domestic demand and rising energy prices. Monetary policy became more accommodative in SAR as real interest rates went further negative on rising inflation expectations, but still low policy rates. The trend only reversed in Pakistan following a rapid policy rate increase. In Pakistan, however, facing fiscal pressures caused real expenditure to contract in 2021, the report added.

The latest international reports confirm the government claims that Pakistan’s economy is improving. However, people are reeling under high prices and the government has failed to take action against hoarders and profiteers. The Murree tragedy has further exposed bad governance. The government will have to take practical measures to check inflation and improve governance. Business as usual will not work now. It will have to improve its performance if it really aims to contest the next election.