How World Bank sees Pakistan's economy
Business
Optimistic tale of economy takes turn as one delves into perspective of the World Bank
M Jahangir Hayat
In juxtaposition of economic perspectives, the Ministry of Finance in Pakistan paints an optimistic picture of the country's ongoing economic recovery, setting the stage for a narrative that is later nuanced by the World Bank's pragmatic concerns.
The ministry highlights a sustained rise in the Pakistan Stock Exchange (PSX) index over the past five months, showcasing outstanding performance in November 2023. This surge indicates positive sentiment and confidence in the business community.
The real sector presents a mixed performance with optimistic prospects in agriculture during the Rabi season of 2023-24.
Wheat cultivation nearly met planned area, with Punjab exceeding its sowing area by 2 per cent. Positive growth indicators such as a 60.7 per cent growth in farm tractor production and a 98.2 percent growth in sales during Jul-Nov FY2024, reflect a positive trend in agriculture sector.
Similarly, there was a 5.6 per cent increase in urea and 42 per cent surge in DAP offtake during Oct-Nov 2023, indicating positive growth in Rabi crops. However, the Large-Scale Manufacturing (LSM) sector demonstrated a minor negative growth of 0.4 per cent during Jul-Oct FY2024.
This mixed trend is observed at the subsector level.
Inflation remains a daunting challenge, with Consumer Price Index (CPI) recording at 29.2 per cent YoY, up from 23.8 per cent in the previous year.
The fiscal side, however, brings positive news, highlighting successful consolidation measures in the first four month of FY 2024. This led to a significant rise in total receipts, outpacing the growth in expenditure. The fiscal deficit is curtailed by 0.8 percent of GDP, and the primary surplus improved to Rs1,429.7 billion during Jul-Oct FY2024.
Externally, the global economic growth outlook is favourable, with increased consumer spending in China and accelerated growth in the US, assisting global recovery.
Pakistan external sector indicators show strong rebound during July-Nov FY2027, marked by a 21.5 per cent YoY increase in exports and a 2.9 percent rise in imports.
The Current Account improved significantly to $1.16 billion during July-Nov FY2024, compared to a deficit of $3.3 billion in the previous year.
Foreign Direct Investment (FDI) reached $656.1 million during Jul-Nov FY2024, exhibiting an 8.1 per cent increase, primarily attributed to Chinese investment.
Remittance also grew by 3.6 per cent in November, driven by structural reforms related to exchange companies and a convergence of the exchange rates in the interbank and open market.
The Monetary Policy Committee (MPC) decided to maintain the policy rate at 22 percent during its meeting on Dec 12, 2023. The MPC assessed the real interest rate remains positive on a 12-month forward-looking basis, expressing optimism about a decline in the headline inflation rate in the upcoming months of FY2024.
Despite the significant challenges, the overall economic outlook, as presented by the Ministry of Finance, is optimistic. Receding inflationary pressures, positive prospects in agriculture, and signs of potential recovery in the industrial sector contribute to this positive narrative.
The first quarter of FY2024 saw a 2.13 per cent growth, largely contributed by agriculture and industry. The twin deficit on the downward trajectory, indicating better economic management and laying the foundation for higher and sustainable economic growth.
However, this optimistic tale takes a turn as we delve into the perspective of the World Bank, where Country Director Najy Benhassine expresses deep concern about Pakistan’s economic model.
In a Policy Vision article, he points out the nation lags behind its peers, the reversal of poverty reduction progress, and the concentration of growth benefits among a narrow elite.
The World Bank’s critique calls for urgent action to address the policy failures, particularly in agri-food and energy sectors, highlighting vulnerabilities to climate change.
As the narrative unfolds, the dichotomy between optimism and pragmatism sets the stage for a critical juncture in Pakistan’s economic trajectory. Navigating through these differing perspectives will require a delicate balance of addressing structural deficiencies while capitalising on positive economic indicators.
The coming months will serve as a litmus test for the effectiveness of measures taken, shaping the economic future of Pakistan.
