Home Latest News Uncertainty over Elections Can Hamper Foreign Investment: World Bank

Uncertainty over Elections Can Hamper Foreign Investment: World Bank

Global lender forecasts GDP growth to remain subdued at 1.7% in ongoing fiscal, with rising food prices to trigger higher poverty, inequality

by Staff Report

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The World Bank, in its latest Global Economic Report, has warned that uncertainty around elections can hamper foreign investment in several South Asian countries, including Pakistan, adding it expects the country’s GDP growth to remain subdued at 1.7% for the ongoing fiscal before increasing to 2.4% in the next fiscal year.

“In a number of [South Asian] economies (Bangladesh, Bhutan, India, Maldives, and Pakistan), parliamentary or national assembly elections are scheduled or planned in 2024,” it said. “The heightened uncertainty around these elections could dampen activity in the private sector, including foreign investment. If combined with political or social unrest and elevated violence, this could further disrupt and weaken economic growth,” it added.

In addition, it said, an increase in spending before elections could exacerbate macro-fiscal vulnerabilities, particularly in countries with weak fiscal positions. However, it added, the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in prospects.

Referring to Pakistan’s economic outlook for the ongoing fiscal year, the World Bank report forecast it to remain subdued at 1.7%, adding this would coincide with a tightened monetary policy to contain inflation and a contractionary fiscal policy, reflecting pressures from high debt-service payments. The political turmoil in the months leading up to, and after elections, it said, would contribute to the slow growth in private demand, noting growth would pick up to 2.4% next fiscal year as inflationary pressures ease.

Of the previous fiscal, it said Pakistan’s economic output had contracted an estimated 0.2% due to the damages caused by the 2022 floods and increased political uncertainty. Consumer price inflation also remained elevated, it said, partly due to currency depreciation in early 2023. However, it noted, the rupee had stabilized in late 2023, due to factors such as increased liquidity in the foreign exchange market due to tighter enforcement of regulations; a shrinking money supply; a balance-of-payments surplus on account of low import demand; and a moratorium on Chinese debt repayments.

The report has warned that ongoing food inflation would push poorer households to spend more on food, disproportionately affecting the poor and the vulnerable and pushing more people into poverty and inequality. This risk is particularly high in countries with limited fiscal buffers to mitigate adverse effects, such as Nepal and Pakistan, and in countries under major security threats like Afghanistan. The ongoing Israeli bombardment of Gaza could also boost food insecurity, it warned.

Globally, the report said the 2020s were a “wasted opportunity” and the outlook would remain “dark” beyond the next two years. It projected global growth to slow for the third year in a row—from 2.6% last year to 2.4% in 2024, adding developing economies are estimated to grow just 3.9%, over 1% lower than the previous decade’s average.

On South Asia, it projected growth to come in around 5.6% in 2024 before increasing to 5.9% in 2025.

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