ISLAMABAD – Asian Development Bank released Pakistan’s economic growthfuture predictions.
Economic growth in Pakistan is expected to slow to 2.6% this year due toongoing stabilization efforts, slower growth in agriculture and the impactof the COVID-19 outbreak, before recovering to 3.2% in 2021 according tothe Asian Development Bank’s (ADB) latest annual flagship economicpublication, Asian Development Outlook (ADO) 2020.
“Pakistan’s strong and decisive policy measures have started to yieldpositive results in reversing macroeconomic imbalances and narrowingcurrent account deficits,” said ADB Country Director for Pakistan XiaohongYang.
Although Pakistan’s economy is in better shape than before, the nationneeds to work together to tackle the new challenges posed byCOVID-19—including uncertain short term growth prospects—and its relatedsocioeconomic repercussions. The government’s emergency package andextensive use of Ehsaas will be vital to blunting the detrimental impactsof the pandemic, particularly on the poor and vulnerable.
Agriculture is expected to see slow growth in fiscal year (FY) 2020 as theworst locust infestation in over two decades damaged harvests of cotton,wheat, and other major crops. Modest growth is expected in someexport-oriented industries, such as textiles and leather.——————————
However, large-scale manufacturing, which provides over half of industrialproduction, will likely contract, as it did in the first half of FY2020.The ongoing COVID-19 outbreak will pose an additional downside risk togrowth prospects as it further dampens consumer demand, exporters,businesses and industries.
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The State Bank of Pakistan, the central bank, raised its policy interestrate by a cumulative 575 basis points to 12.25% at the end of FY2019 tocounter inflationary pressures. Following the decline in global oil pricesand expected sluggish demand under COVID-19, the State Bank of Pakistanreduced it in two steps to 11.00% in March 2020.
Inflation is projected to accelerate to 11.5% in FY2020, reflecting a sharprise in food prices in the first part of the fiscal year and a 9.8% drop inthe value of the local currency against the US dollar in the first 7 monthsof FY2020. The report then forecasts inflation to decelerate to 8.3% inFY2021, with the central bank having to account for this in its nextmonetary policy decision to increase credit to the private sector and boosteconomic activity.
The current account deficit is expected to continue narrowing to 2.8% ofthe gross domestic product in FY2020 based on the reduction in tradedeficit resulting from exchange rate depreciation and the imposition ofregulatory duties to contain import demand, the ADB report notes.
The report notes that the present macroeconomic challenges facing Pakistanunderscore the importance of further strengthening social protection,health, education systems, and providing much needed relief to the mostvulnerable families.
