ADB projects Pakistan’s economy slowdown to 2.6pc this year

• Pakistan agriculture sector is expected to see slow growth in fiscal year (FY) 2020.
• ADB expects inflation to accelerate to 11.5pc in FY2020, reflecting a sharp rise in food prices in the first part of the fiscal year.

The Asian Development Bank (ADB) has projected Pakistan's economic growth to slow to 2.6 percent this year due to ongoing stabilization efforts and the ongoing coronavirus pandemic.

The ADB in its latest report, Asian Development Outlook (ADO) 2020 released on Friday highlighted several factors behind the slowdown including slower growth in agriculture and the impact of the COVID-19 outbreak, the report said that the economy would, however, recover to 3.2pc in 2021.

“Pakistan's strong and decisive policy measures have started to yield positive results in reversing macroeconomic imbalances and narrowing current account deficits,” said ADB Country Director for Pakistan Xiaohong Yang.

“Although Pakistan's economy is in better shape than before, the nation needs to work together to tackle the new challenges posed by COVID-19—including uncertain short term growth prospects—and its related socio-economic repercussions. The government’s emergency package and extensive use of Ehsaas will be vital to blunting the detrimental impacts of the pandemic, particularly on the poor and vulnerable.”

As per the report, the Pakistan agriculture sector is expected to see slow growth in fiscal year (FY) 2020 after the worst locust infestation in over two decades damage harvests of cotton, wheat, and other major crops.

Whereas, modest growth is expected in some export-oriented industries, such as textiles and leather; however, large-scale manufacturing will likely contract, as it did in the first half of FY2020. As per the report, the ongoing COVID-19 outbreak will pose an additional downside risk to growth prospects as it further dampens consumer demand, exporters, businesses, and industries.

Talking about the other economic indicators, ADB expects inflation to accelerate to 11.5pc in FY2020, reflecting a sharp rise in food prices in the first part of the fiscal year and a 9.8pc drop in the value of the local currency against the US dollar in the first 7 months of FY2020.

The report then forecasts inflation to decelerate to 8.3pc in FY2021, with the central bank having to account for this in its next monetary policy decision to increase credit to the private sector and boost economic activity.

Furthermore, the ADB report notes that the current account deficit is expected to continue narrowing to 2.8pc of gross domestic product in FY2020 based on the reduction in trade deficit resulting from exchange rate depreciation and the imposition of regulatory duties to contain import demand.

The report opined that the present macroeconomic challenges facing Pakistan underscore the importance of further strengthening social protection, health, education systems, and providing much-needed relief to the most vulnerable families.