Pakistan’s Economy Shows Signs of a Nascent Recovery

ISLAMABAD, April 6, 2021- Notwithstanding, the recent rise in COVID cases, Pakistan has been showing signs of a fragile economic recovery with a gradual resumption of economic dynamism, according to a new World Bank report.

Pakistan’s economic growth is expected to reach 1.3 percent in FY2021 and strengthen to an average of 2.7 percent for FY2022-23, according to the Pakistan Development Update released today. The baseline economic growth forecast, however, is highly uncertain, especially given the third and more-contagious wave of the pandemic currently circulating in the country.

Private consumption is estimated to have picked up over July to December 2020, in part due to the record increase in remittances inflows, social assistance support from the Ehsaas program, the government’s construction package, and a return to pre-COVID mobility levels from September 2020. Investment is also estimated to be recovering, as machinery imports and cement sales both recorded double-digit growth rates during this period.

“It is crucial to sustain the positive reform momentum to continue to boost the competitiveness of Pakistan’s economy and lay a strong foundation for a more robust, inclusive and sustainable recovery,” said Najy Benhassine, World Bank Country Director for Pakistan. “Increasing competitiveness and stimulating private investment and exports will require continued macroeconomic stability, maintenance of a market-determined exchange rate, and improving the business environment to enable all firms, particularly SMEs, to access markets and compete openly in a leveled playing field. The potential for a strong recovery and a growth acceleration is there. Reforms to make it happen need to be further sustained.”

Given the scope and magnitude of the COVID-19 crisis, understanding how the pandemic affected Pakistan’s private sector will be key to informing the design of new policy measures or refining existing ones to prevent widespread long-term firm closures and job losses.

This edition of the Pakistan Development Update also presents the findings of two waves of World Bank Business Pulse Surveys and suggests several key policy measures to further support the recovery of the private sector and the Pakistani economy.

“Despite some recovery in the private sector, many firms remain vulnerable and require support to prevent closures and further job losses. Policy measures that prevent permanent firm closures and further job losses will contribute significantly to sustaining the recovery,” said Derek H. C. Chen, World Bank Senior Economist for Pakistan.

The policy measures that can be considered include enhancing private sector access to formal finance, in particular for Micro, Small & Medium Enterprises, streamlining regulatory and administrative requirements to ease compliance costs, and providing support to firms in digitizing and establishing an online presence.

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 South Asia region and analyzes policy challenges faced by countries. The Spring 2021 edition titled South Asia Vaccinates, launched on March 31, 2021, shows that economic activity in South Asia is bouncing back, but growth is uneven, recovery remains fragile, and the economic outlook is precarious. The report also focuses on the different dimensions of vaccine deployment and provides a cost-benefit analysis of vaccination in the region.

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