Meanwhile, the Asian Development Bank (ADB) forecasts Pakistan's economic growth will fall to 0.6% from 6% last year due to the ongoing political crisis, flood-related economic losses, foreign exchange challenges, tighter macroeconomic policies at home, and a challenging external environment.
"In the absence of public transfers that cover income losses or mitigate the impact of higher prices, poverty measured at the lower middle-income poverty line (USD 3.65 per day 2017 PPP per capita) is projected to increase to 37.27 FY23, pushing an additional 3.9 million people into poverty as compared to FY22," the Washington-based leading agency said in its flagship Pakistan Development Update (PDU) 2023.
"The depth and severity of poverty have also increased," it continued, "reflecting the overlapping effects of multiple shocks and households' lack of savings to mitigate short-term impacts." The World Bank's GDP growth rate estimate of 0.4% is down from its earlier projection of 2% in January.
It was difficult to write a report about Pakistan at such a critical time when so many things were happening, such as the IMF program, exchange rate volatility, floods, and so on, but all of these highlighted usual structural issues were behind the new numbers, according to World Bank Country Director for Pakistan Najy Benhassine.
"The resolution of Pakistan's economic crisis requires a commitment to sustained macro-fiscal and structural reforms," Benhassine added, adding that this was required both to unlock new financing and avoid a balance of payments crisis, as well as to lay the groundwork for a recovery of private investor confidence and higher growth in the medium term. As a result, the urgency of the challenges demanded long-term measures to stabilize the economy at a period of uncertainty that touched not only Pakistan but also the rest of the world.
According to the study, a number of events, including the effects of flooding and import restrictions on output and labour incomes in industries such as agriculture and the textile industry, have harmed disadvantaged households. This included substantial food inflation, which had a severe impact on all households' actual purchasing power and was especially detrimental to poorer households, which lacked the necessary savings to maintain consumption despite growing expenses.
A projected decrease in overseas remittances also had an impact on households. According to a Dawn report, the report's author, Adnan Ghumman, noted politically-driven slippages in fiscal policy in the context of upcoming elections, constraints on foreign exchange liquidity and uncertainties around external funding inflows, rising levels of public debt, growing bank exposure to the public sector, and political instability.
Agriculture was harmed by flooding and difficulties obtaining vital inputs in the first half of 2022-2023, he claimed, while large-scale manufacturing (LSM) fell by 3.7% as a result of tighter policies and import restrictions. As a result, rising costs and diminishing business and consumer confidence have harmed the services sector, while inflation hit a multi-decade high in the first half of the year.
Despite efforts to lower the current account deficit and stabilize, the country's foreign condition has deteriorated, according to Ghumman. The fiscal deficit increased in the first half of the fiscal year as debt servicing costs increased. Due to the banking sector's increased exposure to the sovereign in recent years, the macroeconomic outlook remained unpredictable and rested on the effective execution of critical reforms, according to Dawn.
According to the World Bank, all estimations are intimately linked to the IMF program, which requires Pakistan to implement and maintain structural and macroeconomic reforms because the country confronts various threats from rising public debt levels and diminishing foreign reserves. This would ensure the increased disbursements and external financing required to reestablish macro-stability and trust.
According to the study, the slower GDP growth was due to the consequences of extreme floods in the summer of 2022, deteriorating confidence, import restrictions, belated fiscal tightening, and reduced private sector activity. According to Dawn, Pakistan witnessed disastrous floods and rising global commodity prices in FY23 as a result of Russia's invasion of Ukraine.
