Thursday , November 26 2020
Breaking News
Home / Op-Ed / Editorial / World Bank’s warning on macroeconomic risks
World Bank’s warning on macroeconomic risks

World Bank’s warning on macroeconomic risks

In its report titled the South Asia Economic Focus, the World Bank has warned Pakistan of the consequences of depleting foreign exchange reserves and increasing macroeconomic risks during the fiscal year 2017. The country is facing persistent current account deficit and micro economic indiscipline, affecting not only the reserves position, but also creating balance of payment problem. The bank, which publishes the report twice a year regarding economic performance of global economies, finds slow economic activities in South Asia due to decrease in private investment and increase in imports and government spending. The South Asian region led the global growth for two years, but has fallen to the second place as the countries in East Asia and the Pacific are now in the driving seat. According to the report, 6.9 percent growth is expected in South Asia this year from 7.5 percent in 2016. However, right mix of policies and reformscould rebound the growth to 7.1 percent in 2018. The report finds that Pakistan was in a comfortable position one year ago as foreign exchange reserves were sufficient to cover the current account deficit. However, the macroeconomic discipline has now weakened and its restoration will be a difficult task for the policymakers in near future.

The main thrust of the government should be on the revival of export sector and improvement in inflow of remittance sent by Pakistani expatriates from abroad. The government will also have to balance imports and exports to deal with the persistent current account deficit. The country has recently regained emerging market status amid progress on the China-Pakistan Economic Corridor,but deterioration in macroeconomic discipline has lost the gains achieved by the country in three years.The report maintains that the ouster of Nawaz Sharif as the prime minister has increased not only economic risks but political uncertainty. The move has adversely affected the reforms programme of the government ahead of the general elections in 2018. The political uncertainty will also affect the structural reforms as well as the business environment, including growth prospects and private investment.

In the current situation, trade deficit will continue to increase and fiscal stability will also be at risk due to rising debts and low inflow of foreign direct investment in the country. The next two years are very important for the economy and the government will have to improve supply side factors and take policy measures to keep up pace with the world economy.