Pakistan’s economic growth will remain below 3% for the next two years, the World Bank says

By Kamran Haider

Pakistan’s economic growth is expected to pick up from the current fiscal but remain below 3% for the next two years, according to the latest World Bank estimates.

The economy is expected to grow 1.8% in the current fiscal year ending June 30 and will grow to 2.3% in the following year and 2.7% in 2026 if there is continued fiscal consolidation and a new bailout program of the International Monetary Fund and the World Bank. Country economist Sayed Murtaza Muzafarri said this during a briefing in Islamabad on Tuesday.

The estimates come as Pakistan’s economic growth weakened in the second fiscal quarter after record high interest rates affected business activity. The South Asian country managed to avoid a state bankruptcy last year, but the economy is still vulnerable.

In a Pakistani development update issued the same day, the World Bank said that “policy constraints on sustainable economic growth remain unaddressed.”

“Unless a major structural reform program is sustainably implemented, growth is expected to remain subdued amid persistently very low investment, persistent external imbalances, distortive fiscal policies and a large state presence in the economy,” the World Bank said.

Prime Minister Shehbaz Sharif, who returned to power after controversial elections in February, wants a new loan from the International Monetary Fund to support the economy and boost Pakistan’s foreign exchange reserves.

The country remains heavily dependent on IMF aid, with external financing needs of $24 billion in the budget year starting in July, about three times its foreign exchange reserves.

Inflation is expected to average 26% in the current fiscal year and decline to 15% next year and 11.5% in 2026, the World Bank’s Muzafarri said. In March, Pakistan’s inflation rate fell to 20.68%, the lowest in almost two years, as borrowing costs curbed economic growth and domestic demand.

First print: April 3, 2024 | 12:04 pm IST