Pakistan’s economic situation has been a concern for many due to increasing debt and decreasing exports. The World Bank has officially warned Pakistan about its macroeconomic conditions, which have deteriorated significantly over the last one year due to heavy short-term borrowings. The World Bank in its bi-annual Pakistan Development Update said that the short-term borrowings can create repayment issues for Islamabad in the future.
Over the last two years, Pakistan has taken short-term foreign loans of $5.8 billion, which can create repayment issues. The World Bank in its report said that macroeconomic imbalances have increased in the last 12 months and these imbalances could lead to domestic and external shocks in the future. Pakistan received gross disbursements amounting to $10.1 billion in the last fiscal year and commercial banks contributed 43% in the total amount. However, the World Bank has termed these facilities as “bullet facilities” for the economy.
Domestic debt has also shifted towards short-term borrowing, which is posing repricing and refinancing risks, according to the World Bank. However, the lender has said that Pakistan’s current public debt level can go down from 68.1% to 66.4% in the next two years, if the government takes corrective actions. This can be a difficult task as the next general elections are scheduled next year.
Another issue that was highlighted in the World Bank’s report was of the overvaluation of rupee against the dollar that is hurting the exports of the country. After International Monetary Fund (IMF), the World Bank has also said that rupee needs to be devalued if Pakistan wants to boost its exports. Otherwise, current account deficit will continue to increase, which can reduce export competitiveness.
The World Bank also mentioned that the social sector of the country is also not doing well due to prevalent gender and income disparities, and lack of funds for human development.
The World Bank said that Pakistan will miss all its key macroeconomic targets for the year including the economic growth rate. GDP growth rate was targeted at 6% this year but according to the report, the economy is expected to grow by 5.5%. Similarly, current account deficit is estimated to stand at 4% of the GDP as compared to the official target of 2.5%.