The World Bank has revised Pakistan’s GDP growth forecast for the fiscal year 2022-23 to 2% from 4%, as the economic crisis worsens due to the catastrophic summer floods and a looming global recession.
In its report Global Economic Prospects-January 2023, released on Tuesday, the World Bank said Pakistan’s real gross domestic product (GDP) is estimated to grow at 2% in FY2022/23, half the pace that was anticipated in June 2022.
The bank has cited a ‘precarious economic situation, low foreign exchange reserves and large fiscal and current account deficits’ among the primary reasons behind slashing the GDP forecast for the South Asian country.
World Bank said last year’s devastating floods worsened Pakistan’s economy, primarily causing significant damage to agricultural production, which accounts for 23% of the country’s GDP and provides employment to 37% of its working population.
“Policy uncertainty further complicates the economic outlook. The recent floods in Pakistan are estimated to have caused damage equivalent to about 4.8 percent of GDP,” the global bank said.
Pakistan’s worsening economic crisis
Pakistan’s foreign reserves depleted to a four-year low of $6.7 billion in December 2022, barely enough to cover its import for a month. The Pakistani rupee, which was valued at 176 rupees against the US dollar in January 2022, depreciated 28% over 12 months, ending the year at 226 rupees. Inflation hit record highs with a food security crisis looming over the nation.
Global slow-down
The growth estimates for Pakistan are in line with World Bank’s global outlook report, which forecasts a “sharp, long-lasting slowdown”, with global growth expected to shrink to 1.7% in 2023 from 3.0% projected in June 2022.
In advanced economies such as the United States, growth is predicted to slow to 0.5% this year — 1.9 points lower than the forecast six months ago. Meanwhile, European countries are expected to flatline as the EU battles severe energy supply disruptions and price hikes due to the Russian invasion of Ukraine in February 2022.
China is expected to expand 4.3% in 2023, 0.9 points below the earlier forecast.
“Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment,” warned World Bank President David Malpass.