ISLAMABAD: The World Bank, which cuts Pakistan’s current fiscal year economic growth outlook to nearly 1%, said on Wednesday that the outgoing government’s last energy subsidy puts additional strain on the budget and threatens the International Monetary Fund (IMF). . ) program.
“Price cuts or funding for subsidies can place additional strain on the fiscal budget, threaten the IMF and ongoing programs, and limit the use of the fiscal budget for other more productive projects,” the World Bank said. said. The IMF-WB annual spring meeting starts early next week.
Hans Timmer, chief economist for the bank’s South Asia region, published the latest ‘South Asia Economic Focus Reshaping Norms: A New Way Forward’, arguing that these subsidies are ‘unsustainable and inefficient’ and should be priced right and redistributed to consumers. I did. poor family.
The bank noted that Pakistan had previously followed an agreement with the International Monetary Fund (IMF) to eliminate tax exemptions and increase taxes on fuel. However, rising domestic energy prices and challenges from political opposition forced the government to provide electricity and fuel price cuts in February. “These measures can help reduce domestic price fluctuations, but they can also constitute a direct burden or hidden responsibility to the government budget, increasing fiscal vulnerability in the future.”
South Asia faces worsening supply bottlenecks and rising inflation, the report said.
“GDP growth is expected to slow to 4.3% in FY22 (5.6% last year) and to 4% in FY23.”
Pakistan’s GDP growth in January changed after being revised to 5.2%. This comes amid austerity measures that began in September 2021, a high base effect from the previous year and sustained high inflation eroding real private consumption growth,” the bank said.
Talking about the region, the bank said growth in the already uneven and fragile South Asia will be slower than previously anticipated due to the impact of the Ukraine war and continued economic hardship. Accordingly, the region is projected to grow by 6.6% in 2022 and 6.3% in 2023. The forecast for 2022 has been revised down by 1 percentage point from the January forecast.
South Asian countries are already grappling with rising raw material prices, supply bottlenecks and weakness in the financial sector. WB South Asia Vice President Hartwig Schafer said the war in Ukraine will amplify these challenges, contributing to inflation, growing fiscal deficits and worsening current account balances.
The bank noted that one of the challenges Pakistan faces in the current environment is energy subsidies, the largest in the region. Inflation is expected to rise in all countries in 2022 and subside in 2023 after reaching double digits in Pakistan and Sri Lanka. In Pakistan, real lending rates in 2021 have briefly fallen into negative territory due to high inflation. However, the string of austerity measures has been lowered. Inflation expectations and real lending rates remain positive from the end of 2021.
On the fiscal side, government debt accumulated in Pakistan during the COVID-19 pandemic could lead to fiscal consolidation measures, which could face political resistance. General government debt has reached over 70% of GDP.
Pakistan experienced the region’s weakest export contraction in 2020 and also noted the fastest recovery, led by the textile sector. In April 2020, during the height of the pandemic, exports of Pakistani goods fell 54% year-on-year. From the end of 2020, the textile sector, which accounts for more than 60% of total commodity exports, is leading the recovery.
Posted at Serb on April 14, 2022