According to a World Bank research released on Wednesday, growth in Pakistan surprised on the upside last year, owing to improved internal demand, record-high remittance inflows, narrow lockdown targeting, and accommodating monetary policy.
As pandemic-related disruptions dissipate, GDP in the South Asian region (SAR) would surge to 7.6% in 2022, according to the bank’s Global Economic Prospects report 2022, before declining to 6.0 percent in 2023.
Because of “improved prospects in Bangladesh, India, and Pakistan,” the World Bank has upgraded its growth predictions for the region since June 2021.
According to the analysis, Pakistan’s economy would grow by 3.4 percent this fiscal year and by 4 percent in 2022-23, owing to structural reforms that will improve export competitiveness and the financial viability of the power industry.
India’s economic growth is expected to be 8.3% this fiscal year and 8.7% in 2022-23, according to the report. The current fiscal year’s 8.3% GDP growth is the same as what the bank predicted in October 2021.
According to the analysis, India’s growth rate will be higher than that of its immediate neighbours in the current and next fiscal years. Bangladesh’s growth is expected to be 6.4 percent in 2021-22 and 6.9 percent in 2022-23, according to the bank, while Nepal’s is expected to be 3.9 percent this fiscal year and 4.7 percent next.
According to the analysis, global economic growth would fall to 4.1 percent this year from an expected 5.5 percent in 2021, and “Omicron-related economic disruptions could considerably lower growth” to as low as 3.4 percent. According to the research, real interest rates in Pakistan fell sharply in 2020 and remained negative through 2021. According to the research, both Bangladesh and Pakistan’s goods trade deficits reached new highs as a result of robust local demand and rising energy prices.
In SAR, monetary policy became more accommodating as real interest rates fell further due to increased inflation expectations, but policy rates remained low. In Pakistan, the tendency was only reversed after a sharp hike in policy rates.
However, due to economic constraints in Pakistan, real expenditure contracted in 2021.
The paper also examines the Taliban’s August takeover of Afghanistan, noting that it resulted in a sudden stop of international grant support as well as a loss of access to abroad assets and the international banking system, resulting in a humanitarian and economic disaster.
Food and energy imports to Afghanistan were also disrupted by the crisis, which resulted from a lack of foreign exchange and financial sector failure.
“Prices for basic household commodities, like as food, are fast rising, while private sector activity is collapsing,” according to the research. “The collapse of the financial system and the difficulty to move funds overseas have hampered the humanitarian response.”
Long-term bond rates in Pakistan and Sri Lanka have significantly increased in late 2021, reversing the epidemic lows.
Pakistan’s monetary accommodation was removed due to high inflation. Except in Pakistan, where excessive inflation led to the withdrawal of monetary accommodation, the research forecasts the region’s monetary policy to tighten but remain moderately supportive in 2022.
Although SAR may continue to catch up to advanced-economy per capita incomes in the foreseeable period, the rate of advancement will be slower than in the decade prior to the pandemic. SAR’s expansion is also being hampered by fiscal issues in Pakistan and Sri Lanka. Bhutan, Nepal, Pakistan, and Sri Lanka’s per capita incomes may slip farther behind leading nations in 2021-23.
Without India, output in the subregion could be roughly 4% below pre-pandemic forecasts in 2023.
