Poverty in Pakistan is estimated to have increased due to record-high food and energy prices, weak labor markets, and flood-related damages. said the World Bank in its latest Macro Poverty Outlook report.
An IMF Stand-by Arrangement (SBA) was recently approved, unlocking new external financing. While recovering slightly, GDP growth will remain below potential over the medium term.
Even with the SBA, reserves are expected to average less than one month of total imports over FY24-FY25, necessitating continued import controls and constraining economic recovery. Real GDP growth is expected to only reach 1.7 percent in FY24, with tight fiscal and monetary policy, persistent inflation, and weak confidence due to political uncertainty surrounding upcoming elections. With the resumption of growth, poverty is expected to decline to 37.2 percent in FY24.
The current account deficit is projected to gradually widen to 1.5 percent of GDP in FY25. Inflation is projected to remain high at 26.5 percent in FY24 and moderate to 17.0 percent in FY25 amid high base effects and lower global commodity prices. However, the higher petroleum levy and energy tariff adjustments will maintain domestic energy price pressures and contribute to growing social and economic insecurity.
Protracted and elevated food and energy price inflation, in the absence of substantial growth, could cause social dislocation and have negative welfare impacts, especially on the worse-off households with already depleted savings and reduced incomes.
The fiscal deficit is forecasted to narrow marginally, averaging 7.6 percent of GDP over FY24 and FY25, reflecting high-interest payments. The primary deficit will remain modest at an average of 0.3 percent of GDP, reflecting consolidation efforts.
Despite liquidity pressures, the public debt-to-GDP ratio is projected to decline over the medium term.
Overall, WB said the economic contraction, high inflation, and flood-related devastation affected poorer households disproportionately in Pakistan, leading to greater inequality. Moreover, the floods, which caused extensive damage to public infrastructure, including schools and clinics, coupled with maladaptive economic coping strategies such as removing children from schools, have likely worsened disparities in human development outcomes within and across regions.