Differences in figures for Pakistan’s gross domestic product or GDP growth rate for previous and current fiscal years between the World Bank and the Pakistan government was because of uncertainties of the Covid-19 pandemic, said World Bank’s Country Director for Pakistan Najy Benhassine on Thursday, hoping that final growth rate would be on the higher side.
The World Bank in its report published on Thursday projected Pakistan’s GDP growth forecast for the fiscal year 2021-22 (FY22) at 3.4% against Islamabad’s target of 4.9% for the year. Similarly, the report also pegged the GDP growth rate for FY21 at 3.5% against the government’s provisional growth rate of 3.9% in FY21.
The ‘October 2021 Pakistan Development Update: Reviving Exports’ report shows that the country’s real GDP growth rebounded to 3.5% in FY2021, after contracting by 0.5% in FY2020 in the wake of the global pandemic.
Moreover, inflation eased, the fiscal deficit improved to 7.3% of GDP, and the current account deficit shrunk to 0.6% of GDP – the lowest in a decade.
“With effective micro-lockdowns, record-high remittance inflows and a supportive monetary policy, Pakistan’s economic growth rebounded in FY2021,” said the World Bank’s country director for Pakistan.
“These measures, together with the expansion of the Ehsaas Program and support to businesses, were key to strengthening the economy and recovering from the economic fallout associated with COVID-19,” he said.
An economist at the World Bank in Pakistan, Zehra Aslam, said that the provisional data issued by the government was based on nine months, which was not final.
She, however, said that the World Bank was relatively late in collecting data. “Growth data would be revised as soon as final figures were received,” she said.
With respect to reforms in various sectors of Pakistan, Benhassine said the World Bank was satisfied and supporting the government’s reforms’ initiatives, especially on revenue and power sides.
He said that the WB’s support to the government in GST harmonization was yielding fruits hoping that this would help increase revenue by 1% of the GDP.
The World Bank is financing the ‘Pakistan Raises Revenue (PRR)’ program with a $400 million IDA concessional credit. The program launched by the government was aimed at sustainably increasing domestic revenue by broadening the tax base and making it easier for citizens and businesses to pay their taxes.
Harmonization involves an agreement among the federal government and the provinces to apply the same definitions, principles, and rates for GST on goods and services.
Harmonization will enable GST collection through a single online portal where firms will file, pay GST, and claim GST refunds for both goods and services at the same time.
Moreover, the WB country director said reforms in Pakistan’s power sector issue were multi-pronged and the increasing tariff was not the only solution.
He said reforms in the power sector might also include controlling circular debt, reducing generation cost, improving efficiency, and reducing technical losses.
Similarly, he also stressed equitably sharing the burden of circular debt among all stakeholders such as the government, consumers, and generation companies.
However, he stressed that the 40% of consumers who fall in the lower category and get subsidies should be protected from this burden.
He expressed the hope that the sixth review of Pakistan’s program with the International Monetary Fund or IMF would successfully conclude soon.
Meanwhile, the report said that due to strengthened domestic demand, imports have grown much higher than exports in recent months, leading to a large trade deficit. To sustain strong economic growth, Pakistan needs to increase private investment and export more.
In examining the country’s persistent trade imbalance, the report identifies key factors that are hindering exports: high effective import tariff rates, limited availability of long-term financing for firms to expand export capacity, inadequate provision of market intelligence services for exporters, and low productivity of Pakistani firms.
“The long-term decline in exports as a share of GDP has implications for the country’s foreign exchange, jobs, and productivity growth. Therefore, confronting core challenges that are necessary for Pakistan to compete in global markets is an imperative for sustainable growth,” said Derek Chen, Senior Economist, World Bank. “Since long-standing issues with the persistent trade gap have resurfaced, this edition of the Pakistan Development Update on “Reviving Exports” provides a timely, in-depth assessment and policy recommendations that can help spur exports.”
The report provides policy recommendations that can help improve Pakistan’s export competitiveness.