World Bank lowers Pakistan’s growth forecast tighter financial conditions

Pakistan’s current-year growth forecast has been significantly reduced by the World Bank due to tighter financial conditions and limited fiscal space. The country’s economy is now expected to grow only 0.4 per cent in the current year, compared to the October 2022 forecast of 2 per cent growth.

This bleaker forecast assumes that an agreement is reached with the International Monetary Fund for bailout funds. Pakistan’s fiscal year runs from July to June, and the country expects its economy to grow 2 per cent in FY23, although the country’s central bank chief has warned that this forecast could face downward pressure.

Pakistan has been in economic turmoil for months, with an acute balance of payments crisis. Talks with the IMF to secure $1.1 billion in funding as part of a $6.5 billion bailout agreed upon in 2019 have not yet yielded fruit. Lower economic output and high prices in Pakistan have led to stampedes and looting at flour distribution centres set up across the country. The World Bank attributed the greater food insecurity for South Asia’s poor to elevated global and domestic food prices.

The World Bank also lowered its 2023 regional growth forecast to 5.6 per cent from 6.1 per cent in October, citing rising interest rates and uncertainty in financial markets as putting downward pressure on the region’s economies. Most countries have raised interest rates at a rapid pace since the war in Ukraine last year led to choking supply chains and stoked inflation globally.

Sri Lanka’s economy is forecast to contract by 4.3 per cent this year, reflecting the lasting impact of the macro debt crisis, with future growth prospects heavily dependent on debt restructuring and structural reforms. In January, President Ranil Wickremesinghe said Sri Lanka’s economy could contract by 3.5 per cent or 4.0 per cent in 2023 after shrinking by 11 per cent last year.

The World Bank also lowered its forecast for India’s economic growth in the current fiscal year to 6.3 per cent from 6.6 per cent, due to the expected negative impact of higher borrowing costs on consumption. The current fiscal year began on April 1.