With everything quiet on the International Monetary Fund (IMF) front, several international lenders seem not very optimistic about the state of Pakistan’s economy. Both the World Bank and the Asian Development Bank (ADB) have forecast a decline in economic growth. The World Bank has estimated that around four million people will fall below the lower middle-income poverty line due to a downturn in economic growth, which has fallen to just 0.4 percent against its target of five percent.
In the same way, the ADB has predicted the country’s economic growth will plunge to 0.6 percent from six percent last year. The factors impacting the growth are economic losses suffered due to floods, the prevalent political situation, the uncertain state of foreign reserves, and macroeconomic policies. According to the World Bank’s Pakistan Development Update (PDU) 2023, poverty measured at the lower middle-income poverty line is projected to increase to 37.2 percent in the fiscal year 2023, driving 3.9 million more people into poverty compared to the fiscal year 2022.
“The depth and severity of poverty have also increased, reflecting the overlapping impacts of multiple shocks and households’ lack of savings to mitigate short-term impacts,” the World Bank report said. Pakistan is passing through a critical time as it has been affected by a fluctuating exchange rate, losses due to floods, and an uncertain IMF programme. The bank’s country director for Pakistan, Najy Benhassine, was of the view that the country could come out of its economic crisis through sustained macro-fiscal and structural reforms, which were required to get fresh financing and avoid a balance of payments crisis.
Reforms are undoubtedly what the country needs. It is the only way to revive investors’ confidence and achieve growth. Pakistan is witnessing a slowdown in economic activity, which has greatly affected households that primarily rely on the agriculture and textile industries. Restrictions on imports due to the unavailability of dollars, a fall in production, and a reduction in labour costs are leading to reduced incomes.
Coupled with high inflation, the purchasing power of many families has been compromised. The report’s author, Adnan Ghumman, said floods hurt agriculture, as a result of which economic activity remained sluggish in the first half of 2022-2023 while large-scale manufacturing shrank by 3.7 percent due to policy tightening and import restrictions. This triggered an increase in costs and a fall in business, taking inflation to a record high.
On the other hand, the ADB, in its annual Asian Development Outlook (ADO) for April 2023, stressed the need to revive the IMF programme to lift falling foreign reserves, address the balance of payment issues, and open up foreign inflows from other sources. The report also called on the government to identify financing sources to fill the external financing gap.
The bank feared that the high inflation would further reduce purchasing power. Given these reports, the government has to seriously start taking measures to revive our ailing economy.
Doling out free flour is not the answer, there is a need to put Plan B into place, and that plan is to stop political bickering and start an economic activity. With most industries shut or almost shut, we need to pump in new life and get the economy on its feet. How long do people have to wait for good times?