With the pandemic, the government has prioritized managing COVID-19 infection waves, initiating a mass vaccination campaign, increasing its cash transfer program, and providing supportive monetary conditions to support economic growth. Faced with the fourth COVID-19 wave, the government established micro-lockdowns, which successfully reduced the spread of the infection while allowing economic activity to continue, reducing the economic impact. Vaccination rates have been increasing, although they are still low. Only about 12% of the overall population had been properly vaccinated as of September 2021.
In FY22, the 39-month IMF-Extended Fund Facility (IMF-EFF) will most likely restart, with the 6th Review mission scheduled for October 2021. Domestic revenue mobilization, the elimination of power sector arrears, energy subsidy reform, and more central bank operational autonomy are all key changes backed by the EFF, all of which are projected to enhance long-term growth.
Real GDP growth (at factor cost) is expected to have risen to 3.5 percent in FY21 after a decline of 0.5 percent in FY20, owing to low base effects and recovering domestic demand. Private consumption and investment are expected to have strengthened during the FY, bolstered by record-high official remittance inflows received through legitimate banking channels and an accommodating monetary policy. Government consumption is expected to have increased as well, though at a slower rate than in FY20, when the COVID-19 fiscal stimulus package was implemented. Net exports, on the other hand, are expected to fall in FY21, since import growth nearly doubled that of exports due to strong domestic demand. On the production side, industrial activity is expected to have rebounded after two years of contraction, thanks to strong large-scale manufacturing. Similarly, once universal lockdown measures were gradually relaxed, the services sector, which contributes for 60% of GDP, is predicted to have expanded. The agriculture sector, on the other hand, is projected to have slowed, owing in part to a near-30% drop in cotton production due to unfavorable weather conditions.
Despite decreasing from 10.7% in FY20 to 8.9% in FY21, headline consumer price inflation remained high owing mostly to strong food inflation, which is anticipated to disproportionately affect poorer households who spend a greater proportion of their income on food goods than non-food products. Real interest rates were negative during FY21, thanks to the policy rate being at 7.0 percent. This aided the recovery.
As substantial remittance inflows offset a bigger trade deficit, the current account deficit shrank from 1.7 percent of GDP in FY20 to 0.6 percent in FY21. With the issuing of US$2.5 billion Eurobonds, foreign direct investment declined but portfolio inflows surged. In FY21, the balance of payments surplus was 1.9 percent of GDP, and official foreign exchange reserves reached US$18.7 billion at the end of the year, the highest level since January 2017 and equivalent to 3.4 months of total imports. As a result, the Rupee gained 5.8% against the US dollar in the fiscal year, while the real effective exchange rate increased by 10.4%.
The budget deficit shrank to 7.2 percent of GDP in FY21, down from 8.0 percent in FY20, as revenue growth exceeded greater expenditures, thanks to stronger domestic activity. At the end of June FY21, public debt, including guaranteed debt, was 90.7 percent of GDP, down from 92.7 percent at the end of June FY20.
Poverty incidence, measured at the international poverty line of $1.90 PPP 2011 per day, is predicted to have reduced to 4.8 percent in FY21 from 5.3 percent in FY20, owing to the rebound in the industry and services sectors and the resulting off-farm employment prospects. However, this shift is not statistically significant, and the downside risks of lockdown-induced job losses and high food prices persist.
Budgetary and monetary tightening are projected to resume in FY22, after the 25-basis-point policy rate hike in September 2021, as the government refocuses on moderating increasing external pressures and addressing long-standing fiscal issues. With the execution of major structural reforms, such as those targeted at sustaining macroeconomic stability, increasing competitiveness, and improving the financial viability of the energy sector, output growth is expected to moderate to 3.4 percent in FY22 before strengthening to 4.0 percent in FY23.
With predicted domestic energy tariff hikes and increased oil and commodity costs, inflation is expected to pick up in FY22 before leveling off in FY23. Poverty is predicted to continue to decline, with a 4.0 percent unemployment rate by FY23. With greater economic growth and oil prices, the current account deficit is expected to widen to 2.5 percent of GDP in FY23. After tapering in FY22, exports are likely to rebound sharply as tariff reform initiatives gain pace, boosting export competitiveness. Furthermore, after benefiting from a COVID-19-induced transfer to formal channels in FY21, the increase of official remittance inflows is likely to slow.
Despite efforts to reduce the deficit, the deficit is expected to remain high in FY22, at 7.0 percent of GDP, and widen to 7.1 percent in FY23 as a result of pre-election spending. The implementation of essential revenue-enhancing changes, particularly the harmonization of the General Sales Tax, would help to reduce the fiscal deficit over time. In the medium run, Pakistan’s public debt will remain high, as will its vulnerability to debt-related shocks. This forecast assumes that the IMF-EFF program will proceed as planned.
The IMF-EFF program delaying or stalling, as well as the resulting external financing difficulties, exceedingly high domestic demand leading to unsustainable external pressures, more contagious COVID-19 strains necessitating widespread lockdowns, and a worsening of regional and domestic security conditions, including those stemming from the Afghanistan situation, are all major downside risks. All of this could cause essential structural reforms to be postponed.
Why is Pakistan so impoverished?
While Pakistan is one of Asia’s wealthiest countries, poverty remains a reality for the majority of its citizens. The fact that many Pakistanis lack basic human rights is the main reason of the country’s poverty rate. Many Pakistanis, particularly women and children, beg on the streets across the country.
Is Pakistan’s economy improving?
WASHINGTON: According to a World Bank research released on Wednesday, growth in Pakistan surprised on the upside last year, owing to improved internal demand, record-high remittance inflows, narrow lockdown targeting, and accommodating monetary policy.
As pandemic-related disruptions dissipate, GDP in the South Asian region (SAR) would surge to 7.6% in 2022, according to the bank’s Global Economic Prospects report 2022, before declining to 6.0 percent in 2023.
Because of these factors, the World Bank has changed its growth predictions for the area since June 2021 “Bangladesh, India, and Pakistan have improved chances.”
According to the analysis, Pakistan’s economy would grow by 3.4 percent this fiscal year and by 4 percent in 2022-23, owing to structural reforms that will improve export competitiveness and the financial viability of the power industry.
India’s economic growth is expected to be 8.3% this fiscal year and 8.7% in 2022-23, according to the report. The current fiscal year’s 8.3% GDP growth is the same as what the bank predicted in October 2021.
According to the analysis, India’s growth rate will be higher than that of its immediate neighbors in the current and next fiscal years. Bangladesh’s growth is expected to be 6.4 percent in 2021-22 and 6.9 percent in 2022-23, according to the bank, while Nepal’s is expected to be 3.9 percent this fiscal year and 4.7 percent next.
The research also warns that global economic growth will fall to 4.1 percent this year from an expected 5.5 percent in 2021 “Economic disruptions caused by Omicron might cut growth to as low as 3.4 percent. According to the research, real interest rates in Pakistan fell sharply in 2020 and remained negative through 2021. According to the research, both Bangladesh and Pakistan’s goods trade deficits reached new highs as a result of robust local demand and rising energy prices.
In SAR, monetary policy became more accommodating as real interest rates fell further due to increased inflation expectations, but policy rates remained low. In Pakistan, the tendency was only reversed after a sharp hike in policy rates.
However, due to economic constraints in Pakistan, real expenditure contracted in 2021.
The paper also examines the Taliban’s August takeover of Afghanistan, noting that it resulted in a sudden stop of international grant support as well as a loss of access to abroad assets and the international banking system, resulting in a humanitarian and economic disaster.
Food and energy imports to Afghanistan were also disrupted by the crisis, which resulted from a lack of foreign exchange and financial sector failure.
“Prices for basic household commodities, like as food, are fast rising, while private sector activity is collapsing, according to the research. “The collapse of the financial system and the difficulty to move funds overseas have hampered the humanitarian response.”
Long-term bond rates in Pakistan and Sri Lanka have significantly increased in late 2021, reversing the epidemic lows.
Pakistan’s monetary accommodation was removed due to high inflation. Except in Pakistan, where excessive inflation led to the withdrawal of monetary accommodation, the research forecasts the region’s monetary policy to tighten but remain moderately supportive in 2022.
Although SAR may continue to catch up to advanced-economy per capita incomes in the foreseeable period, the rate of advancement will be slower than in the decade prior to the pandemic. SAR’s expansion is also being hampered by fiscal issues in Pakistan and Sri Lanka. Bhutan, Nepal, Pakistan, and Sri Lanka’s per capita incomes may slip farther behind leading nations in 2021-23.
Without India, output in the subregion could be roughly 4% below pre-pandemic forecasts in 2023.
Is Pakistan’s Gross Domestic Product (GDP) low?
Pakistan has a semi-industrial economy and is a developing country. Textiles, leather goods, sports goods, chemicals, and carpets/rugs are among the most important export items.
The Indus River’s diversified economies of Karachi and major metropolitan centers in Punjab coexist with less developed areas in other parts of the country as the country’s economic growth poles. Internal political strife, a rapidly increasing population, and a mixed amount of foreign investment have all harmed the economy in the past. Foreign exchange reserves are strengthened by consistent worker remittances, but a rising current account deficit caused by a widening trade gap as import growth outpaces export growth might deplete reserves and slow GDP growth in the medium run. Pakistan is implementing an economic liberalization process, which includes the privatization of all government enterprises, with the goal of attracting international investment and reducing budget deficits.
Pakistan’s government has predicted that future growth rates will be 5%, one of the highest in South Asia, as of May 2021. Pakistan’s poverty rate declined from 64.3 percent in 2001 to 21.9 percent in 2018, according to the World Bank. Pakistan’s debt outlook has been upgraded to “stable” by Moody’s Investors Service, owing to the country’s improving macroeconomic situation.
In terms of purchasing power parity, Pakistan’s GDP surpassed $1 trillion in 2017. The predicted GDP (PPP) for 2021 is more over 1.4 trillion US dollars. The current account deficit is one of the issues facing the country’s economy as international commodity prices rise. By May of this year, the Pakistani rupee had lost 30% of its value against the US dollar compared to the previous year. CPEC Phase 2 will begin in 2020, with fresh billion-dollar agreements.
Is Bangladesh a wealthier country than Pakistan?
This not only contributed to internal stability, but also to strong relations with India, the country’s powerful neighbor. As a result, Bangladesh might reduce its defense budget and put public funds to better use.
It’s important to look back at how Bangladesh’s core attitude differed from that of its former ruler, Pakistan. Bangladesh was the poorer of the two portions of Pakistan prior to independence, with the western section being 70% richer. The tables have been turned today.
Bangladesh, once a poor, disease-ridden backwater, is now wealthier than Pakistan, both in absolute and relative terms. With a per capita income of $2,554 compared to Pakistan’s meager $1,543, it is projected to be 45 percent wealthier.
Is India or Pakistan the poorer country?
With a GDP of $2,709 billion dollars in 2020, India’s GDP will be about ten times that of Pakistan’s $263 billion dollars. The disparity is larger in nominal terms (almost ten times) than in ppp terms (8.3 times). In nominal terms, India is the world’s fifth largest economy, while in ppp terms, it is the third largest. Pakistan has a nominal ranking of 48 and a PPP ranking of 24. Maharashtra, India’s most economically powerful state, has a GDP of $398 billion, far exceeding Pakistan’s. Tamil Nadu, India’s second-largest economy ($247 billion), is relatively close. The gap between these two countries was at its narrowest in 1993, when India’s nominal GDP was 5.39 times that of Pakistan, and at its widest in 1973. (13.4x).
In terms of gdp per capita, the two countries have been neck and neck. For only five years between 1960 and 2006, India was wealthier than Pakistan. In 1970, Pakistan’s GDP per capita was 1.54 times that of India. Since 2009, the margin has widened in India’s favor. On an exchange rate basis, India’s per capita income was 1.56 times more than Pakistan’s in 2020, with an all-time high of 1.63x in 2019. The previous year, Pakistan was wealthier than India. Both countries rank near the bottom of the world in terms of GDP per capita. India is ranked 147 (nominal) and 130 (absolute) (PPP). Pakistan is ranked 160 (nominal) and 144 in the world (PPP). There are 28 Indian states/UTs that are wealthier than Pakistan.
In 2020, India’s gdp growth rate (-7.97) will be lower than Pakistan’s (-0.39) after 19 years. India’s GDP growth rate reaches a high of 9.63 percent in 1988 and a low of -5.24 percent in 1979. Pakistan’s inflation rate peaked at 11.35 percent in 1970 and peaked at 0.47 percent in 1971. Pakistan expanded by more than 10% in three years from 1961 to 2017, while India never did. India’s GDP growth rate has been negative for four years, whereas Pakistan’s growth rate has never been negative.
According to the CIA Fackbook, India’s GDP composition in 2017 was as follows: agriculture (15.4%), industry (23%), and services (23%). (61.5 percent ). Agriculture (24.7 percent), Industry (19.1 percent), and Services account for the majority of Pakistan’s GDP in 2017. (56.3 percent ).
What is Pakistan’s position among the richest countries?
Pakistan is ranked 138th overall in the Prosperity Index. Pakistan has risen 13 places in the rankings chart since 2011.
PILLAR RANKINGS
Pakistan outperforms the rest of the world in terms of business conditions and investment climate, but it lags behind in other areas.
Natural surroundings. In comparison to a decade ago, the biggest improvement was in Safety & Security.