World Bank rings alarm bells for Pakistani economy

World Bank rings alarm bells for Pakistani economy

The ongoing political uncertainty in the country is a serious threat to Pakistan’s economic well-being according to the World Bank.

The World Bank’s (WB) Pakistan Development Update that was released on Tuesday highlights that sustaining the economic recovery requires addressing long-standing structural weaknesses of the economy and boosting private sector investment, exports and productivity. Macroeconomic adjustment measures, specifically fiscal consolidation to complement the ongoing monetary tightening, are urgently needed. Poverty is estimated to have declined but rising food and energy inflation have diminished the real purchasing power of households.

Pakistan’s economy enjoyed a strong recovery and grew 5.6 percent in FY21 following measures taken by the government to mitigate the adverse socio-economic impacts of the pandemic.

While economic activity maintained its momentum from July to December 2021, high demand pressures and rising global commodity prices led to double-digit inflation and a sharp rise in the import bill during this period. These developments have had an adverse impact on the rupee. Moreover, long-standing structural weaknesses of the economy, including low investment, low exports, and low productivity growth pose risks to a sustained recovery.

The report highlights that with economic recovery and improved labor market conditions, poverty — measured at the lower-middle-income class poverty line of the $3.20 Purchasing Power Parity 2011 per day — declined from 37 percent in FY20 to 34 percent in FY21. However, rising food and energy prices are expected to decrease the real purchasing power of households and disproportionally affect poor and vulnerable households that spend a bigger portion of their budget on these items.

WB Country Director for Pakistan, Najy Benhassine, said that “Pakistan’s economic recovery after the COVID-19 crisis indicates that the country has enormous potential to overcome challenging economic situations”. link