ISLAMABAD: The unstable economic condition and destructive floods, according to the World Bank, will cause Pakistan's economic growth to drop to half — down by 4% to 2% — for the current fiscal year, The News reported Wednesday.

"However, Sri Lanka continues to be in crisis, and Pakistan confronts growing economic challenges. According to the World Bank's Global Economic Prospects, published on Tuesday, "increases in living standards during the half-decade to 2024 are likely to be slower than from 2010-19.

According to the report, catastrophic flooding in August of last year made Pakistan's economy, which already had low foreign exchange reserves and significant fiscal and current account deficits, even worse. Nearly 15% of the population was directly impacted, and about one-third of the country's land area was damaged, resulting in infrastructure damage.

Needs for recovery and reconstruction are anticipated to be 1.6 times the national development budget for FY2022/23 (Government of Pakistan). By interfering with the present and forthcoming planting seasons, the floods is expected to have substantially harmed agricultural production, which accounts for 23% of GDP and 37% of employment, and driven 5.8 to 9 million people into poverty. The economic outlook is further complicated by policy uncertainty.

Pakistan's currency depreciated by 14% between June and December, and its nation risk premium increased by 15% during this time due to the country's limited foreign exchange reserves and rising sovereign risk.

Pakistan's annual rate of consumer price inflation recently fell from its highest level since the 1970s to 24.5% in December.

This is mostly caused by Pakistan's sluggish growth, which is forecast to be 2% in FY2022/23, half the rate that was expected in June. Pakistan is dealing with difficult economic circumstances, including the fallout from the most recent flooding as well as ongoing political and policy uncertainties. Growth is anticipated as the nation implements policy measures to stabilise macroeconomic conditions, inflationary pressures abate, and reconstruction after the floods gets under way.

Damage from the recent floods in Pakistan is thought to have been equivalent to 4.8% of GDP. Extreme weather can worsen food insecurity, cut off a region's access to vital resources, devastate infrastructure, and directly affect agricultural output.

By 2050, according to estimates for Bangladesh, rice, vegetable, and wheat yields will likely be 5-6% lower than they would be in a world without climate change. The implementation of macroeconomic policy might be hampered by extreme weather conditions.

For instance, the paper noted that increasingly unpredictable monsoon rains in India have resulted in more fluctuating food prices, destabilising household expectations for inflation, impairing the ability to predict inflation, and complicating the formulation of monetary policy.

In order to control excessive exchange rate volatility and prevent further depreciation of the rupee, India used its foreign reserves, which stood at $550 billion in November, or 16% of GDP. Additionally, its sovereign spread has remained largely stable at 1.4% in December, which is comparable to average levels in the five years prior to the pandemic.