Pakistan’s economy recovered in Fiscal Year 2021 due to the government’s effective lockdown strategy to contain the COVID-19, which was expected to gain upward trends in coming days, said a new World Bank report release on Wednesday.
The October 2021 Pakistan Development Update: Reviving Exports shows that the country’s real GDP growth rebounded to 3.5 percent in FY2021, after contracting by 0.5 percent in FY2020 with the onset of the global pandemic.
In addition, inflation eased, the fiscal deficit improved to 7.3 percent of GDP, and the current account deficit shrunk to 0.6 percent of GDP – the lowest in a decade.
Read more: Pakistan’s economy moving towards growth?
“With effective micro-lockdowns, record-high remittance inflows and a supportive monetary policy, Pakistan’s economic growth rebounded in FY2021,” said Najy Benhassine, World Bank 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.”
However, 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.
Pakistan needs long-term reform for reviving exports: World Bank https://t.co/CS7eQRg2nE. Only free & fair elected government in office can solve this issue ….not selected….
— aftab wilson (@WilsonAftab) October 29, 2021
“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. The report recommended to gradually reduce effective rates of protection through a long-term tariff rationalization strategy to encourage exports besides reallocating export financing away from working capital and into capacity expansion through the Long-Term Financing Facility.
It also suggested to consolidate market intelligence services by supporting new exporters and evaluating the impact of current interventions to increase their effectiveness and design and implement a long-term strategy to upgrade productivity of firms that fosters competition, innovation and maximizes export potential.
The Pakistan Development Update is a companion piece to the South Asia Economic Focus, a twice-a-year World Bank report that examines economic developments and prospects in the region and analyzes policy challenges faced by countries.
The Fall 2021 edition titled Shifting Gears: Digitization and Services-Led Development, showed that South Asia’s recovery continues as global demand rebounded and targeted containment measures helped minimize the economic impacts of the recent waves of COVID-19. But the recovery remains fragile and uneven, and most countries remain far from pre-pandemic trend levels.