World Bank warns Pakistan of macroeconomic instability

World Bank

World Bank has warned Pakistan of macroeconomic instability, and the balance of payment crisis considering the widening existing account deficit and other challenges associated with the country’s economy.

In its Pakistan-related report Country Economic Memorandum 2.0, World Bank stated that Pakistan has had a current account deficit of 16 to 21 billion-dollar annually since the turn of the century.

Consequently, the risks of a balance of payment crisis and macroeconomic uncertainty have increased.

The report added that Pakistan’s real GDP per capita progress has been low at about 2 % since 2000 which is almost 2.7 % points lower than the South Asian average.

In contrast, the real GDP per capita growth of Bangladesh and India during the same time remained at 4.8 and 5.2 percent respectively.

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Besides, the report also revealed that exports and investment demand added on average 1.4 percentage points to total demand growth from 1999 to 2009/10. This contribution decreased to an average of 0.7 percentage points since 2010.

Low growth contributions of exports and investment are linked with productivity stagnation leading to macroeconomic instability; the report added that an average employee in Pakistan in 2018 generated only 38.1 percent more output than in 1991, whereas one from Vietnam produced 257.6 percent more than in 1991. 

Moreover, the evidence for publicly registered firms specifies that the average productivity of firms between 2012 and 2017 has increased slightly, the report states.

Many organizations are not capitalizing enough even to replace their depreciation, “Though exporters invest more than domestic-oriented firms and foreign-owned firms invest more than domestic-owned firms”, it added.

Pakistani exporters accounted for 0.15 percent of international exports in 2005, while in 2019 they accounted for just 0.12 percent and this suggests relative productivity stagnation, and of comparatively low scope for future productivity growth.

In addition, the report unveiled that there is a requirement to focus on revealing productivity-led growth through better allocation of talent and resources, though, technology could play a major role in reducing hurdles that women face to access education and work opportunities.

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