Pakistan’s Current Economy is anticipated to increase by barely 2% in the current fiscal year, which ends in June 2023. Slower growth would reflect damages and disruptions caused by catastrophic floods, a restrictive monetary stance, rising inflation, and a less supportive global climate, according to the World Bank’s October 2022 Pakistan Development Update: Inflation and the Poor. The recovery would be modest, with real GDP growth of 3.2 percent expected in fiscal year 2024.
Poverty in the hardest-hit areas is expected to intensify as a result of the recent flooding. Preliminary estimates indicate that, in the absence of substantial relief and recovery actions to assist the poor, the national poverty rate may rise by 2.5 to 4 percentage points, driving 5.8 to 9 million people into poverty. Macroeconomic risks are particularly considerable, as Pakistan confronts problems from a big current account deficit, high state debt, and weaker demand from traditional export markets amid slowing global economy.
“The recent floods are projected to have a significant detrimental impact on Pakistan’s Current Economy and on the poor, mostly through agricultural output interruption,” said Najy Benhassine, World Bank Country Director for Pakistan. “The government must find a balance between providing enormous relief and recovery needs and completing long-overdue macroeconomic changes.” It will be more necessary than ever to properly target poverty relief, keep the budget deficit below sustainable bounds, maintain a strict monetary policy stance, retain exchange rate flexibility, and make headway on crucial structural reforms, particularly those in the energy sector.”
This Update also discusses alternative techniques for mitigating the effects of excessive inflation. In Pakistan, inflation is predicted to reach over 23% in FY23, reflecting flood-related disruptions in food and other products supply, rising energy costs, and tough external factors, notably tighter global monetary conditions. According to the Update, excessive inflation will disproportionately affect the poor.
There can be no economic miracle in Pakistan!
When Ishaq Dar entered office as federal finance and revenue minister more than a week ago, there was an immediate depreciation of the dollar against the rupee, a rise in the stock market index, and a decrease in the price of petroleum items. Is it possible for one guy, who has twice served as federal finance minister and fled Pakistan five years ago due to corruption accusations, to generate an economic miracle? Is there any logic to Dar’s argument that he can heal the economy by stabilising the exchange currency, lowering interest rates, and reducing inflation?
Furthermore, the inadequate $8 billion in foreign reserves, which are only enough to cover three weeks of imports, is reason for concern. It will be nothing short of a miracle if Dar can achieve a paradigm change in the economy due to severe facts that will not enable the country to avoid the inevitable. Pakistan must get $40 billion in foreign finance during the current fiscal year. This is in addition to the $20 billion in damages caused by the recent floods. Because of the huge demand for the dollar for imports and other uses, artificial appreciation of the rupee versus major currencies would not succeed. Miracles to save the economy in today’s Pakistan are unlikely to occur due to ground conditions realities which are highly unfavorable.
Due to the PTI-PAT sit-in in Islamabad in 2014, things were equally challenging when Dar took over as finance minister in 2013, but he overcame the issue. This time, despite Dar’s purported magical abilities, things are different since Pakistan’s economy is in serious trouble and the country’s 222 million citizens face a variety of internal and external challenges in addition to the destruction brought on by the floods. Prime Minister Shehbaz Sharif is in charge of a coalition of about a dozen parties in 2022, although unlike in 2013, when the PML-N had a two-thirds majority.
Dar can’t allow miracles to occur because he has dirty hands, and so do a lot of other people who also happen to be his coalition partners and the leaders of his own party. Continuously pleading for aid from friendly nations and donors will be ineffective since Pakistan’s aristocratic society is completely unaware of the significant political and economic catastrophe that exists there. It would be ineffective and lead to more crisis to artificially lower prices and appreciate the rupee against the dollar.
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