The World Bank downgraded its economic growth projection for Pakistan by nearly one percentage point, blaming last-ditch energy subsidies provided by the country’s outgoing administration.
“GDP growth of Pakistan is predicted to drop to 4.3 percent in FY22 (from 5.6 percent last year) and to 4 percent in FY23,” according to the World Bank’s research.
According to the lender, which is based in Washington, Pakistan must immediately cease providing energy subsidies, which it describes as “unsustainable and ineffective.”
However, the World Bank noted in its report, ‘the latest South Asia Economic Focus Reshaping Norms: A New Way Forward’, that economic growth is projected to recover to 4.2 percent in FY24, supported by the implementation of structural reforms to support macroeconomic stability and the dissipation of global inflationary pressures.
According to the report, countries in South Asia are already coping with rising commodity prices, supply constraints, and vulnerabilities in their banking sectors, among other problems. It is expected that the war in Ukraine would exacerbate these problems, causing inflation to rise even higher, fiscal deficits to widen, and current account balances to worsen even worse.
The region has been hit by a number of shocks over the previous two years, not the least of which has been the COVID-19 pandemic’s lingering repercussions. “High oil and food prices as a result of the conflict in Ukraine will have a significant detrimental impact on people’s actual wages,” said Hartwig Schafer, Vice President of the World Bank for South Asia.
“In light of these problems, governments must carefully prepare monetary and fiscal policies in order to prevent external shocks and protect the weak, while also laying the groundwork for environmentally friendly, resilient, and inclusive growth.”
In addition, the bank stated that inflation is likely to grow in all nations in 2022, reaching double digits in Pakistan and Sri Lanka before decreasing in 2023 in all countries.