EDITORIAL: Pakistan’s projected growth rate for the current year is 4.3%, while 4% is projected for 2022-23, according to the World Bank report titled “The South Asia Economic Focus, Reshaping Norms : a New Way Forward” – a rate lower than that predicted by the outgoing Khan administration’s finance minister, Shaukat Tarin, who had forecast a rate of 5% for the current year and 6% for the financial year next.

Although a sitting finance minister has a natural tendency to exaggerate growth, as it reflects on his own performance, Pakistan’s economy has performed worse than that of Bangladesh, which is expected to record a growth rate of gross domestic product with 6.4% and India with 8.9%. Both Nepal and Sri Lanka rely heavily on tourism as a source of income.

These two countries performed worse than Pakistan due to the maintenance of travel restrictions at 3.7% and 2.4%, respectively. However, what is worrying is that the World Bank forecasts Pakistan’s growth for next fiscal year to be the lowest in the region at 4%, Nepal at 4.1%, Bhutan at 4.4 %, Bangladesh at 6.7% and the Maldives at 10.2%. Sri Lanka’s growth rate is not projected due to its default on foreign loans.

Why Pakistan’s performance will be the weakest in the next fiscal year has been chronicled over and over again. The deal with the International Monetary Fund (IMF) effectively ended when then-Prime Minister Imran Khan announced an unsustainable relief package on February 28 due to the simmering political crisis, which the The World Bank’s chief economist agreed, adding that the program would increase public finances. vulnerabilities and advised Pakistan to carefully monitor the fiscal balance amid rising external debt and domestic debt vulnerabilities.

Capacity-to-pay indicators such as the ratio of public external debt service to exports and remittances are highest in Pakistan and Sri Lanka, the report notes, which, given Sri Lanka’s announcement Lanka from a default in payment and violent street protests, must result in the need for immediate mitigation of policy measures to deal with the crisis which must include the reduction of current expenditure which was allowed to rise from 4.3 trillion rupees in 2017-2018 to well beyond the 7.5 trillion rupees budgeted for the current year considering the relief program. And rising interest rates in the West could cause funds to flow out of Pakistan, putting further pressure on our currency as Pakistan grapples with external debt.

World Bank report laments Pakistan’s low export-to-GDP ratio (at 10%), requiring tariff rationalization to encourage manufacturers to export and compete in global markets, but does not dwell on impending crisis the current account deficit. The trade deficit topped $35.4 billion in July-March and reserves account for less than two months of imports, which is the most compelling reason to start talks with the IMF on the stalled seventh review.

It is highly doubtful that the new government will be able to improve the politically difficult but economically critical conditions agreed upon at the sixth review without canceling the relief plan. The only flexibility in the short term (about three months) for the government led by Shehbaz Sharif would be to improve administrative measures to control food prices and to target subsidies only to vulnerable people through the support program of the Benazir income.

Microfinance borrowers accounted for 94% of approved requests for loan deferral or loan restructuring, representing a massive 42.78% increase in non-performing loans from microfinance banks. Imran Khan’s Kamyab Pakistan program, including a youth entrepreneurship program, envisioned free or cheap credit for target groups which, if implemented, would further increase non-performing loans. However, the World Bank notes that the microfinance sector accounts for 3.6% of total lending, so any stress is likely to be localised.

There is no mention of the Sehat Sahulat card in the report; however, there is a need for the new government to request an actuarial audit of the entire program to ensure that it is financially viable; and if not, limit it again to the vulnerable through the BISP (Benazir Income Support Programme).

Regardless of the defensiveness in the face of mounting criticism of the previous government’s handling of the economy, it has clearly come to an impasse. And as former finance minister Hafiz Pasha told Business Recorder, the responsibility for implementing corrective policies lies entirely with the Ministry of Finance, because there is simply no room left in monetary policy. with a high discount rate and an eroding rupee that has been reversed. measure from March 8 — the day the Monetary Policy Committee raised the Bank Rate by 250 basis points and Shehbaz Sharif was elected Prime Minister. However, perhaps a new IMF program will give a little more flexibility to the new government instead of negotiating the seventh review of the current program.

Copyright Business Recorder, 2022