Daily Times

The World Bank’s latest report, Global Economic Prospects (GEP) 2021, would have wiped some smiles off some influential faces in Islamabad because it claims that Pakistan’s economy would grow by only 0.5 percent in 2021 against the global economy’s growth rate of about four percent. This is especially interesting since the government has set this year’s GDP growth target at 2.1 percent, which gives a very different feel about the economy than the Bank’s expectations. It is now becoming painfully clear that most estimates made at the time when we were emerging from the first wave of the virus were just off the mark, not the least because we are now firmly in the grip of the second wave and the results are very different.

There is also the prospect of further downward revision if things get any worse and the government is forced to come up with yet another stimulus package to keep businesses and credit markets solvent. And while there is no denying that the government is fortunate to be in a bailout program with the International Monetary Fund (IMF) at the moment, it is also very true that the program comes with conditions, like fiscal consolidation, that restrict the finance ministry’s room to maneuver in unusual circumstances like the present. It is because of such restrictions that the World Bank expects Pakistan’s GDP growth rate to average somewhere around 1.3 percent over the next two fiscal years, which is also much below the expectations of the Pakistani government.

The government must use whatever little time it has left before the second wave of the virus forces the economy to shut down once again and stimulate the private sector. A good way to do that would be maintaining some flexibility on the matter of interest rates when the state bank takes up the matter very shortly. Our interest rate environment is still pretty elevated considering the trend in the region and beyond. And considering that it has not yet done its most basic job, that is to encourage greater private sector offtake, there is still room for at least another cut. If the economy is expected to struggle to come out of last year’s contraction, it is all the more important to let the private sector take the lead. Hopefully such proactive management of the economy will make international institutions also look at the growth picture from the point of view of the government. *