WB cuts growth forecast, slump to persist through 2021

Updated April 04, 2020

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Expenditures could rise by 2pc of GDP; $2.5bn can be repurposed quickly if required. — AFP/File
Expenditures could rise by 2pc of GDP; $2.5bn can be repurposed quickly if required. — AFP/File

ISLAMABAD: Two key lenders have both reduced Pakistan’s growth forecast for this year and the next, presaging a prolonged slump in economic activity set to persist well into the year 2021. The revisions come only a day after Moody’s, the global credit rating agency, also slashed Pakistan’s growth forecast for the rest of the year.

“We are revising our real GDP growth projection to 1.1 per cent of GDP, from an earlier projection of 2.4pc for FY20” said Shabih Ali Mohib, programme leader and lead economist of the World Bank, during a video conference call with journalists on Friday. The drivers for this slowdown are the services and the manufacturing sectors, he added. For 2021 the Bank’s revised growth projection is 0.9pc, sharply down from 3pc.

The revised projections came from the Bank during a virtual meeting of the World Bank’s Country Director Patchamuthu Illangovan, and his team including Shabih Ali Mohib, programme leader and Amjad Zafar Khan, task team leader of Pandemic Response Effectiveness Project (PREP) with a select group of journalists here on Friday.

Expenditures could rise by 2pc of GDP; $2.5bn can be repurposed quickly if required

He said the impact of Covid-19 pandemic is expected to persist for another six months. The services sector constitutes 60pc of the economy he said, and is at the forefront of the impact from the lockdowns and the sharp reduction in imports. After this, manufacturing, which constitutes 20pc of the economy, is also bearing the brunt. The disruption in these two sectors will lead to a steep fall in economic activities, he said.

“We expect the impact to hit by last quarter of this fiscal year and the first quarter of next fiscal year” he said, meaning the months from April through August are set to see a sharp slump in the pace of economic activity, as per the World Bank’s projections.

The bank also foresees a sharp rise — equal almost to 2pc of GDP — in expenditure requirements in the months ahead, along with a fall in revenue collection due to the slowdown in the economy. Both these developments will drive up the fiscal deficit, though the Bank did not say by how much.

By contrast the Asian Development Bank (ADB) was more restrained in its assessment.

“Economic growth in Pakistan is expected to slow to 2.6pc this year due to ongoing stabilisation efforts, slower growth in agriculture and the impact of the Covid-19 outbreak, before recovering to 3.2pc in 2021,” the Manila based lending agency said in its latest annual flagship economic publication, Asian Development Outlook 2020.

“Although Pakistan’s economy is in better shape than before, the nation needs to work together to tackle the new challenges posed by Covid-19 —including uncertain short term growth prospects — and its related socioeconomic repercussions. The government’s emergency package and extensive use of Ehsaas will be vital to blunting the detrimental impacts of the pandemic, particularly on the poor and vulnerable” ADB Country Director for Pakistan Xiaohong Yang said.

The ADB also forecasts inflation to ease to 11.5pc as the monthly average for the current fiscal year by June, with the downward glidepath to continue next year as well as it falls to 8.3pc next year.

The World Bank said close to $2.5bn remain undisbursed from Pakistan’s portfolio and this money could be quickly repurposed for medical needs or supporting mitigation efforts for the coming socio-economic disruptions. In case of demands from federal and provincial governments, the Bank can do some quick restructuring and make these funds available, he said.

The World Bank Group is rolling out a $14bn fast-track package to strengthen the Covid-19 response in developing countries and shorten the time to recovery. $200m has been approved for Pakistan thus far.

The country director said the amount will be used in three broad areas — to purchase medical equipment and supplies, provide support of $150m to BISP for safety nets and to support kids who are currently out of schools in remote learning.

“PREP will help strengthen the country’s capacity to detect and monitor the disease. In addition, it will also make available resources to support cash transfer through existing arrangements to the poor and vulnerable. We will continue to partner with federal and provincial governments to ensure effective implementation during these testing times,” he further said.

PREP will help establish quarantine facilities in collaboration with public and private hospitals and also supply equipment to hospitals, including ventilators and Personal Protection Equipment for doctors and paramedics.

The project will benefit infected people, at-risk populations, medical and emergency personnel, service providers in medical and testing facilities (both public and private), and national and provincial departments of health.

The extra $38 million financing is repurposed from existing projects and will support federal and provincial governments in purchasing necessary equipment and supplies. Procurement is underway and some equipment and supplies have arrived and being put to service, he said.

“That is why we feel confident and comfortable that the money can be moved quickly and put to the right kind of purpose,” Mr Illangovan said.

Published in Dawn, April 4th, 2020