The World Bank issued its South Asia Economic Focus report this week where it forecasted that most South Asian countries will experience GDP growth lower than their long-run averages. The growth slowdown is reflected in weakening stock financial markets.
World bank also observed that Current account deficits have declined in the region, as happens in the economic downturns. While Inflation remains largely around the target.
As per the report, South Asia is losing its shine as economic slowdown take a toll on major economies i.e: India, Pakistan and Bangladesh.
South Asia region has recently witnessed a decline in industrial production which follows global developments, but it is more pronounced and idiosyncratic factors are at play as well.
The World Bank Report showed concern over Short Term Economic recovery in Pakistan and categorized the country having the lowest economic growth in the region in the year 2020. It notes,
“In Pakistan, growth is projected to deteriorate further to 2.4 percent this fiscal year, as monetary policy remains tight and the planned fiscal consolidation will compress domestic demand. The program signed with the IMF is expected to help growth recover from fiscal year 2021-22 onwards”
The recovery in Pakistan’s economy is dependent on stability in global markets, a decline in Crude oil prices and reduced political risks/security risks. Pakistan GDP growth for 2020 is projected at 2.4% while for 2021 it is expected around 3%. While the weakest economy in the region, Affghanistan is expected to grow at a better rate (3% in 2020) due to improved farming conditions. Increased Aid flows, Accelerated reforms and improved security conditions will bring growth to the war-torn country.
Pakistan’s Inflation is expected to increase to 13% in 2020 and decline gradually onwards. Further increase in prices will be derived from the second-round impact of exchange-rate pass-through to domestic prices.
World Bank also noted that Pakistan’s commercial banks are well-capitalized. However, increased public sector credit (through central government borrowing) and higher interest rates are expected to crowd out private credit in the near-term.
While Pakistan’s Progress in poverty reduction is expected to stand still during the macroeconomic adjustment period.