Asian Development Bank (ADB) has projected 2% GDP growth for Pakistani economy during the current financial year (2020-21). This growth is linked with the containment of coronavirus and the resumption of structural reforms under the International Monetary Fund (IMF) programme.
However, the ADB’s economic outlook is subject to unusually potent downside risks in light of uncertainty about the duration and magnitude of the pandemic, the persistence of containment measures, and more than expected fall in remittances.
The Manila-based lender improved its economic growth rate forecast for the South Asian region to 7.1% from 4.9% in June but kept Pakistan’s growth forecast unchanged at 2%.
ADB’s forecast is conditional and depends how quickly the largest trading partners of Pakistan are going to recover from COVID-19 pandemic. US, China, Britain, France, Germany, Saudi Arabia and UAE are the major trading partners.
On the other hand, it improved its growth forecast for China in 2021 to 7.7pc instead of 7.3pc and expected India to grow by 8pc from its earlier estimate of 5-6pc. The ADB downgraded Bangladesh growth forecast to 6.8pc instead of 8pc earlier. Similarly, Afghanistan growth rate was lowered to 1.5pc from about 4pc estimated in June.
The ADB said that the growth rate of 2% for financial year2021 assumed that the Covid-19 impact will subside by the end of 2020, allowing global conditions to normalise and economic sentiment to improve. It also assumed the resumption of structural reform under an ongoing IMF Extended Fund Facility programme to address macroeconomic imbalances.
On the supply side, agriculture was expected to continue to lend impetus to the GDP growth. Growth in industry is forecast to improve in FY2021, led predominantly by construction and small-scale manufacturing. In addition to the normalisation of global economic conditions, improved market sentiment, and stronger business and consumer confidence expected with the easing of the Covid-19 pandemic by the end of the first half of FY2021, a relatively low policy rate should facilitate the financing of industrial initiatives.
It expected the inflation is to slow to 7.5% in FY2021, lower than earlier forecasts driven by the expected economic recovery, but tempered by expenditure reform, and the government’s decision to stop borrowing from the central bank, which should help slow growth in the money supply to 14.2% in FY2021.
The current account deficit is anticipated to remain contained at the equivalent of 2.4% of GDP in FY2021. Exports are expected to grow in FY2021 with the likely pickup in economic activity in Pakistan’s major trade partners, and as exports become more competitive thanks to government measures to reduce business costs.
Imports will rebound from a low base in FY2020 and, more importantly, in response to economic recovery in FY2021—and despite higher tariffs on imports of non-essential goods. Remittances should continue to cushion the current account deficit but will likely be lower than in FY2020 with the layoff of Pakistani workers overseas, in particular in the Persian Gulf, as economic activity remains soft globally.
Pakistan’s public debt is expected to revert to a downward trajectory as the IMF stabilisation programme improves prospects for fiscal consolidation, and assuming rapid economic recovery from the Covid-19 shock.
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