For the current fiscal year, 2021–22, the World Bank predicted that Pakistan’s GDP would grow by 3.4%, but it now thinks that it will grow by 4.3% for the next fiscal year, 2022–23.
Pakistan and Sri Lanka pay the most money back from exports and remittances in South Asia because they owe money to other countries. The World Bank said this in a report released on Wednesday.
If you look at indicators of ability to pay, Pakistan and Sri Lanka have the highest ratio of debt service to exports and remittances. This is what the World Bank said in its report, The South Asia Economic Focus, Reshaping Norms: A New Way Forward:
People in Sri Lanka aren’t able to refinance their debts on the open market because of a series of sovereign credit rating downgrades because of increased fiscal and external risks, the report said.
Hans Timmer, the World Bank’s Chief Economist for South Asia, said that Pakistan needs to cut down on its huge budget and current account deficits in order for the economy to be more stable and grow more quickly.
As long as Pakistan can repay its debt, it isn’t in danger. But in the medium to long term, Islamabad would have to cut down on its twin deficits, Timmer said
People who read the WB’s report say that Pakistan’s GDP growth is expected to slow down to 4.3% in FY2021/22 (ending June 2022) and 4.0% in FY2021/23.
Banks started to raise interest rates in September 2021. This comes at the same time as high base effects from the previous year, as well as high inflation that is eroding real private consumption growth in real terms. Beyond that, the expectation is that growth will start to pick up again as structural reforms to support macroeconomic stability, increase domestic revenue collections, improve the financial viability of the energy sector, and make exports more competitive start to take off.
The World Bank says that even though the region’s economy is growing again, the recovery has been different for different sectors, countries, and groups of people, even though the economy is growing again as a whole. In most countries, the production and export of digital services have risen. But in many other sectors, like construction, transportation, and tourism, there hasn’t been a full recovery.
Some countries have seen a strong rebound in GDP growth, but Afghanistan, Pakistan, and Sri Lanka all have problems with humanitarian aid, politics, and money. High-skilled workers kept their jobs or found new ones during the pandemic, but only a few low-skilled migrant workers have returned to work in the cities.
It’s not just that men have been able to find new jobs more quickly than women:
As a percentage of GDP, energy subsidies in Pakistan are the highest. The World Bank said in a report that the price rise in international markets could put a strain on the country’s budget.
Pakistan’s exports fell the least in 2020, and the textile industry’s recovery was the fastest. This is because the textile industry led the way back to growth. In April 2020, when the pandemic was at its peak, Pakistani goods exports fell by 54% year-over-year, which was a big drop.
Since late 2020, the textile industry, which makes up more than 60% of all goods exported, has led the way. Pakistan eased COVID-19 restrictions before other Asian countries did. This helped Pakistan get orders from other countries and keep its good exports 40% above January 2019 levels.
These are some of the commodity groups that have been getting help with exports, along with a big cut in import tariffs for intermediates used in the textile industry, and a good exchange rate over the last few years.
The government is also giving money and incentives to other businesses in order to diversify the country’s exports and lessen the country’s dependence on textiles. Some new policies were put in place to encourage businesses to open up to more customers. These policies were aimed at areas like pharmaceuticals, engineering products, and chemicals.
Going forward, the country needs to diversify its exports and boost its low exports-to-GDP ratio, which is currently around 10%. For example, tariffs could be cut to make it easier for manufacturers to export and compete in global markets.
It’s not clear how high commodity prices will affect prices in the country as a whole or how they will affect local businesses.
In Pakistan, inflation is still rising, but it is not as high as it once was. In March, there was a lot of inflation in edible oils and fuel-related categories, but there wasn’t as much in wheat.
During the COVID period, the government built up a lot of debt, which could lead to fiscal consolidation measures that might not be popular with the public. Over 70% of GDP in Pakistan, over 80% in India, over 100% in Sri Lanka, and over 100% in the Maldives are debts that the government has to pay back (World Bank Macro Poverty Outlook).
Bhutan’s government debt was already over 100 percent of GDP in FY2018/19, and it is expected to reach 135 percent of GDP in FY2020/21. This is because the country’s hydropower projects needed more money during the pandemic. India has tried to cut its debt load by relying on the growth in goods and services tax and fuel-based tax revenue while cutting back on current spending in FY2021/22.
Pakistan had already agreed to remove tax exemptions and raise the tax on fuel with the IMF. But rising energy prices at home and opposition from the political opposition have forced the government to cut electricity and fuel prices. There is a chance that the IMF’s loan program could be at risk if price cuts or subsidies are implemented. This could limit the use of the fiscal budget for other, more useful projects.
The World Bank says that growth in South Asia, which is already uneven and fragile, will be slower than previously thought because of the war in Ukraine and other economic problems.
Reshaping Norms: A New Way Forward was released on Wednesday. It says the region will grow by 6.6% in 2022 and 6.3% in 2023. The 2022 forecast has been changed by 1% compared to the January projection.
Countries in South Asia are already dealing with rising commodity prices, supply bottlenecks, and problems in the financial sector. This is just the beginning. The war in Ukraine will make these problems even worse. As a result, inflation, fiscal deficits, and current account balances will all get worse as a result.
In the past two years, South Asia has been hit by a lot of things, including a pandemic called COVID-19. Oil and food prices will go up because of the war in Ukraine, and this will have a big effect on the real value of people’s incomes. Hartwig Schafer, World Bank Vice President for South Asia, said this.
“Given these challenges, governments need to be very careful when they plan monetary and fiscal policies so that they can protect the weak and lay the groundwork for green, resilient, and inclusive growth.“
Even though GDP growth has been strong during the recovery, all the countries in the region will have problems to deal with in the next few years. In India, household consumption will be limited by the slow recovery of the labor market and rising prices. Risks: The Maldives imports a lot of fossil fuels as a percentage of GDP, and there are fewer tourists from Russia and Ukraine. Fiscal and external imbalances in Sri Lanka make the country’s economic future a lot less certain than in other countries.
In Afghanistan, rising food prices will make it more difficult for people to eat. Energy subsidies in Pakistan are the largest in the region. This is one of the problems Pakistan is having in the current world. Bangladesh will have less demand from Europe for its goods. On the bright side, service exports from the region are on the rise.
The war and its effect on fuel prices can give the region a much-needed push to cut back on fuel imports and move toward a green, resilient, and inclusive growth path. The report says that countries should stop giving rich people money to buy fuel, which wastes money for the government and helps only the rich. They should also move toward a greener economy by introducing taxation that puts tariffs on goods and services that cause environmental damage, like coal and oil, over time.
“Introducing green taxes can have a number of concrete benefits for South Asia, including better energy security, environmental gains, and more money for the government,” said Timmer.
Some of these funds could be used “to better prepare for climate-related disasters and to improve social safety net systems.”
This isn’t the only problem the region has. Women have had a bigger economic impact from the pandemic than men. The report looks at gender disparities in the region and how they’re linked to social norms that are deeply ingrained. It recommends policies that will help women get more jobs, fight discriminatory norms, and improve gender outcomes for inclusive growth.
