Pakistan’s economy slows as inflation rises amid catastrophic floods

ISLAMABAD, October 6, 2022 – Pakistan’s economy is expected to grow by only 2% in the current fiscal year ending June 2023. According to World Bank October 2022 report Pakistan Development Update: Inflation and the Poor, slower growth will reflect the damage and disruption caused by catastrophic flooding, tight monetary policy, high inflation and a less conducive global environment. The recovery will be gradual, with real GDP growth expected to reach 3.2% in FY2024.

Poverty in the hardest hit regions is likely to worsen in the context of the recent floods. Preliminary estimates suggest that – without decisive relief and recovery efforts to help the poor – the national poverty rate could rise by 2.5 to 4 percentage points, plunging between 5.8 and 9 million people into poverty. Macroeconomic risks also remain high as Pakistan faces challenges related to a large current account deficit, high public debt and weaker demand from its traditional export markets amid sluggish global growth.

The recent floods are expected to have a substantial negative impact on Pakistan’s economy and the poor, mainly due to the disruption of agricultural production,” he added. said Najy Benhassine, World Bank country director for Pakistan. “The government must find a balance meet the huge relief and recovery needs, while staying on track with long overdue macroeconomic reforms. It will be more important than ever to carefully target aid to the poor, keep the fiscal deficit within sustainable limits, maintain a tight monetary policy, ensure continued exchange rate flexibility and advance key structural reforms. , particularly those in the energy sector. .”

This update also outlines potential strategies for managing the impacts of high inflation. Inflation in Pakistan is expected to reach around 23% in FY23, reflecting flood-related disruptions in the supply of food and other goods, rising energy prices and difficult external conditions, including the tightening of global monetary conditions. The update shows that high inflation will have a disproportionate impact on the poor.

“While relief measures are needed to cushion the effects of the floods, it will be essential to ensure that they are targeted to those who need them most,” said Derek HC Chen, author of the report. “Pakistan has used energy subsidies in the past, but our analysis shows that such measures disproportionately benefit wealthier households, while imposing unsustainable fiscal costs. Going forward, the priority should be to control inflation through sound macroeconomic policies. These should be accompanied by measures to provide targeted support to those hardest hit by rising prices, including through expanded social protection programs, and to address distortions that discourage trade and productivity.

The Pakistan Development Update is a complement to the South Asia Economic Focus, a semi-annual World Bank report that examines economic developments and prospects in the South Asian region and analyzes policy challenges facing countries. The Fall 2022 edition titled Coping with Shocks: Migration and the Road to Resilience, launched on October 6, 2022, shows that growth in South Asia is slowing due to recent major global and regional shocks, including rising inflation ; the impacts of global food, fertilizer and fuel shortages; the economic crisis in Sri Lanka; and the catastrophic floods in Pakistan. It also analyzes the impacts of COVID-19 on migration and the role labor mobility and migration can play in facilitating economic development.

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