As many as 10 million more people are at risk of descending into poverty in Pakistan, according to the World Bank’s biannual report which has painted a bleak picture of the cash-strapped country’s economy.
The US-based lender’s assessment comes in the wake of a slow economic growth rate coupled with soaring inflation, a staggering 26 percent in the current fiscal year. The World Bank’s biannual Pakistan Development Outlook report indicated that the country is set to miss almost all major macroeconomic targets.
‘Budget target’
The international lender said the country is anticipated to fall short of its primary budget target, remaining in deficit for three consecutive years, contrary to the International Monetary Fund’s stipulations mandating a surplus. Sayed Murtaza Muzaffari, lead author of the report, said despite a board-based yet nascent economic recovery, poverty alleviation efforts remain insufficient.
The economic growth is projected to stagnate at a paltry 1.8 percent while maintaining the poverty rate at around 40 percent, with approximately 98 million Pakistanis already grappling with poverty, the World Bank report said. The report underlined the vulnerability of those hovering just above the poverty line, with 10 million individuals at risk of slipping into poverty.
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Poor and vulnerable
The report said that the poor and vulnerable are likely to have benefited from the windfall gain in agricultural output but these gains were offset by continued high inflation and limited wage growth in other sectors that employ many of the poor, such as construction, trade, and transportation. The wages of daily labourers increased only five percent in nominal terms during the first quarter of this fiscal year when the inflation was above 30 percent, it said.
The persisting cost-of-living crisis coupled with rising transportation costs could potentially lead to an increase in out-of-school children and delayed medical treatments, particularly for worse-off families, warned the World Bank. At the same time, it added that food security remains a concern in parts of the country.
“Despite some recovery, Pakistan’s economy remains under stress with low foreign reserves and high inflation. Policy uncertainty remains elevated and economic activity is subdued, reflecting tight fiscal and monetary policy and import controls,” the World Bank said. The Washington-based lender said growth is projected to remain below potential with heightened social vulnerability and limited poverty reduction in the medium term. “Financial sector risks, policy uncertainty, and stronger external headwinds pose significant risks to the outlook,” it added.
‘Current account deficit’
Pakistan’s current account deficit (CAD) narrowed to USD 0.8 billion in the first half of the current fiscal year from USD 3.6 billion in the first half of the last fiscal year, on import controls, reduced domestic demand, and lower global commodity prices, the report said. Meanwhile, official remittances fell by 6.8 percent year-on-year in the first half of the current fiscal year due to exchange rate rigidities earlier in the year.
“Inflation is projected to remain elevated at 26 percent in FY24 due to higher domestic energy prices, with little respite for poor and vulnerable households with depleted savings and lower real incomes,” it said. The World Bank said the fiscal deficit is projected to widen to eight percent of the GDP due to higher interest payments but gradually decline as fiscal consolidation takes hold and interest payments fall over time. Pakistan’s economy is expected to grow by only 1.8 percent in the current fiscal year ending June 2024 whereas the official target is 3.5 percent, the World Bank said.
(With agency inputs)
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