NEW YORK: Facing significant economic challenges, Pakistan is expected to see “modest” growth, with its gross domestic product (GDP) expected to grow by 2 percent in 2024, according to a major United Nations report.
It notes that Pakistan has entered into a US$3 billion stand-by arrangement with the International Monetary Fund (IMF), and the mid-year World Economic Situation and Prospects report said the program is expected to help stabilize the economy and boost the country’s foreign exchange value. reserves and facilitate fiscal adjustments while protecting essential social spending.
It also said that tight financial conditions and fiscal and external imbalances will continue to weigh on growth in South Asia in the near term.
“Furthermore, geopolitical tensions – including the ongoing war in Ukraine and conflict in West Asia – will expose countries in the region that are net oil importers, including India, to the risk of a sudden spike in oil prices.”
Between July and October, the U.S. dollar rose about 6.5 percent against a basket of global currencies, hitting an 11-month high, driven largely by the strong performance of the U.S. economy and high interest rates.
“Thus,” it said, “between July and October, the Sri Lankan rupee depreciated by 3.2 percent against the US dollar, while the Indian rupee weakened by 1.2 percent. Following the 2022 interest rate hike, most central banks in South Asia in 2023, with a few exceptions, has suspended monetary policy tightening or started to reduce its key monetary policy rates.
In this regard, the report noted that the State Bank of Pakistan has kept its key interest rate unchanged at a record high of 22 percent from June 2023.
Afghanistan continued to be the country most affected by the food crisis in the region, with approximately 46 percent of the population facing acute food insecurity.
Also challenging are the ever-worsening climate shocks that threaten decades of development gains, particularly for least developed countries (LDCs) and small island developing states (SIDS), the report said.
As for the global economy, it is now forecast to grow by 2.7 percent in 2024 (up 0.3 percentage points from the January forecast) and 2.8 percent in 2025 (up 0.1 percentage points) .
These changes are mainly due to better-than-expected results in some major developed and developing countries, notably Brazil, India, Russia and the United States, the report said.
Inflation has also eased from the 2023 peak, Shantanu Mukherjee of the UN Department of Economic and Social Affairs (DESA) told reporters in New York.
“In developed countries, tight labor markets are increasing wages for some segments of the population and also attracting people into the workforce, which is important,” he added.
However, given higher interest rates, debt sustainability risks and ongoing geopolitical tensions, the outlook is only cautiously optimistic.
Although the outlook for SIDS has been revised upward to around 3.3 percent each year, Mukherjee said it was still below the pre-pandemic average, meaning “lost ground is still not being made up.”
For Africa and LDCs in general, the outlook is revised downward to around 3.3 percent growth in 2024.
“This is particularly worrying because Africa is home to about 430 million people living in extreme poverty and nearly 40% of the world’s undernourished population,” explained Mukherjee. In addition, two-thirds of the high-inflation countries listed in the report are on the continent.
“In 2024, more than a quarter of public revenue on average on this continent went to interest payments. This is again about 10 percentage points higher than the average for the years immediately preceding the pandemic.
For developing countries, on average, the debt situation is not so dire, but he was concerned that investment growth continued to decline, he said.
These “downsides” are further compounded by risks such as inflation, which is both a symptom of underlying fragility and a problem in itself.
The report also includes a special section on critical minerals such as lithium, nickel, cobalt and copper, which are essential for the clean energy transition.
However, countries possessing these resources will need smart policies as well as effective implementation capacity to reap the benefits.
In the past, mineral-driven growth has often been associated with environmental damage, stunted development of other sectors, poverty, conflict and other adverse consequences, collectively known as the “resource curse”.
