Macroeconomic progress?

With inflation forecasted to rise to 13% in the ongoing fiscal year, poverty reduction remains a distant dream

A couple of days after the government’s economic team claimed at a press conference in Islamabad that the economy is on the mend and the trade and fiscal deficits have been largely in control, a World Bank report has warned of yet another macroeconomic crisis due to high fiscal deficit and low foreign exchange reserves. The report titled ‘South Asia Focus: Making (De)centralisation Work’ has forecast a further slowdown in the economy with the growth rate falling as low as 2.4 per cent during the ongoing fiscal year. The report only sees a slow recovery — to just 3.0 per cent — in the next fiscal year. But the recovery, according to the report, is relative to the success of the structural reforms having been introduced domestically as well as stability in global markets, low international oil prices and reduced political and security risks.

The current account deficit is forecast to decline to 2.6 per cent of GDP in the current fiscal year and to a further 2.2 per cent in the next as the exchange-rate flexibility is expected to support a modest recovery in exports and rationalisation of imports. In a warning sign though, the consolidated fiscal deficit, including grants, is projected to reach 7.5 per cent of GDP during this fiscal only to come down slightly, to 6.2 per cent, during the next. The public debt-to-GDP ratio will, however, remain high in the next fiscal year at 80.8 per cent, increasing the exposure to debt-related shocks, according to the World Bank report. Inflation is forecast to rise to 13 per cent in the ongoing fiscal year, with the price hike driven by a further pass-through impact of the rising exchange rate to the domestic market.

The declining growth, the rising inflation and the ballooning debt very clearly suggest a further fall in the capacity of the masses to bear the impact of the prevailing economic crisis. And all that is enough, to sum up, that poverty reduction will remain a distant dream, as also warned by the World Bank report which says that progress on this count will remain slow.

Published in The Express Tribune, October 15^th, 2019.

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