Tighter financial conditions and limited fiscal space have weakened Pakistan’s growth prospects, the World Bank said, prompting the institution to cut the country’s current-year growth forecast.

Compared to its October forecast of 2%, the World Bank now expects Pakistan’s economy to grow by 0.4%, assuming that the local authorities strike a deal with the International Monetary (IMF).

Although Pakistan expects growth at 2% during the ongoing fiscal year — which runs from July to June — State Bank of Pakistan (SBP) Governor Jameel Ahmad said in January that the growth forecast could face downward pressure.

Islamabad has witnessed economic and political turmoil since April last year and faces an acute balance of payments crisis as the talks with the IMF for the latest bailout programme have been stalled.

With inflation at an all-time high of 35.4% and the rupee at a historic low against the dollar, people’s buying power has been shattered, leading to stampedes and looting at flour distribution centres set up across the country.

“Elevated global and domestic food prices are contributing to greater food insecurity for South Asia’s poor who spend a larger share of income on food,” the bank said.

The World Bank lowered its 2023 regional growth forecast to 5.6% from 6.1% in October.

“Rising interest rates and uncertainty in financial markets are putting downward pressure on the region’s economies,” the report said.

Most countries have raised interest rates at a rapid pace since the war in Ukraine last year led to choking supply chains and stoked inflation globally.