‘Political turmoil’ in Pakistan to slow private sector growth: World Bank

The World Bank has raised concerns that heightened political uncertainty in Pakistan could slow down growth in the private sector.

In its latest publication ‘Global Economic Prospects — January 2024’ released on Wednesday, the World Bank shared that Pakistan’s economic outlook for FY2023/24 (July 2023 to June 2024) remains subdued, with growth projected at only 1.7%.

“Monetary policy is expected to remain tight to contain inflation, while fiscal policy is also set to be contractionary, reflecting pressures from high debt-service payments.

“Weak confidence stemming from political turmoil will contribute to the slow growth in private demand. As inflationary pressure eases, growth is expected to pick up to 2.4% in FY2024/25,” read the report.

The remarks come as the South Asian country remains engulfed in various challenges including rising volatility at the political front, with uncertainty over the next elections, which are expected to be held next month.

The report highlighted that the output in Pakistan, contracted an estimated 0.2% in FY22-23 as a result of the effects of damage from the 2022 floods and increased political uncertainty.

“Consumer price inflation remained elevated, partly reflecting currency depreciation in early 2023. However, by late 2023, the rupee showed signs of stabilization, driven by a variety of factors.

“These included increased liquidity in the foreign exchange market due to tighter enforcement of regulations, a shrinking money supply, a balance-of-payments surplus on account of low import demand, and a moratorium on Chinese debt repayments,” it noted.

Meanwhile, global growth is projected to slow for the third year in a row—from 2.6% last year to 2.4% in 2024, almost three-quarters of a percentage point below the average of the 2010s.

The World Bank said that the developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade.

“After a disappointing performance last year, low-income countries should grow 5.5%, weaker than previously expected. By the end of 2024, people in about one out of every four developing countries and about 40% of low-income countries will still be poorer than they were on the eve of the COVID pandemic in 2019. In advanced economies, meanwhile, growth is set to slow to 1.2% this year from 1.5% in 2023,” read the report.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President.