COVID-19 will slow Pakistan’s economic growth: Asian Development Bank
The AfDB report indicates that weaker demand under Covid-19 could have a negative effect on exports.
“Economic growth in Pakistan is expected to slow to 2.6% this year due to ongoing stabilization efforts, slower agricultural growth and the impact of the Covid-19 outbreak, before easing. recover to 3.2% in 2021,” the AfDB said.
The report said agriculture is expected to see slow growth in fiscal 2020, with the worst locust infestation in more than two decades damaging crops of cotton, wheat and other major crops. He expects modest growth in some export-oriented industries, such as textiles and leather. But large-scale manufacturing, which provides more than half of industrial output, is expected to contract, as it did in the first half of 2020.
The AfDB report says inflation would be fueled by rising food prices, planned hikes in utility tariffs and the depreciation of the national currency.
“Inflation is expected to pick up to 11.5% in FY 2020, reflecting a sharp rise in food prices in the first part of the FY and a 9.8% decline in the value of the local currency against the US dollar during the first 7 months. of the 2020 financial year,” said a press release issued by the AfDB.
The State Bank of Pakistan, the central bank, raised its policy interest rate by a cumulative 575 basis points to 12.25% at the end of fiscal 2019 to counter inflationary pressures. Following lower global oil prices and expected weak demand under COVID-19, the State Bank of Pakistan cut it in two steps to 11% in March 2020.
The AfDB report expects the inflation rate to moderate to single digits in 2021 at 8.3%. With a growth rate of 2.6%, Pakistan will be the sixth slowest growing economy in South Asia, followed by Sri Lanka and the Maldives.
The AfDB noted that Although the strong policy measures taken by Pakistan in recent years have started yielding positive results in reversing macroeconomic imbalances and reducing the current account deficit, the country needs to focus on the new challenges posed by Covid-19, such as uncertain short-term growth prospects and socio-economic repercussions.