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June 15, 2013

World Bank gives a blow to Dar’s estimates, calculations

Karachi

June 15, 2013

ISLAMABAD: Contrary to the growth prospects envisaged by the PML-N government over the next three years, the World Bank has projected much lower growth prospects for Pakistan and expressed fears that balance of payments pressures have risen with the foreign currency reserves falling below two months of imports, notwithstanding the robust remittance inflows.
“Pakistan, South Asia’s second largest economy, appears to have settled into a relatively low growth path of about 3-4 percent in recent years mainly due to unfavourable domestic factors, including security uncertainties, unreliable delivery of natural gas and electricity to firms, and weak investment rates,” the WB’s Global Economic Prospects (GER) report stated on Friday.
Risks in the post election period, it said, include the possibility that past reforms are reversed or implementation delayed. “Policy actions to address the underlying adverse structural factors are critical to raising Pakistan’s longer term growth potential,” the WB’s report stated.
The WB has projected the GDP growth at 3.4 percent in FY 2013, 3.4 percent in 2014 and 3.7 percent in 2015 without output being held back by a wide range of structural problems, including weak investment (down a third since 2008 when expressed as a percent of GDP). estimated to have risen sharply in recent years to above seven percent of GDP.
The WB mentioned that in countries either exiting (Pakistan) or entering electoral cycles (Bangladesh, India, Nepal), spending pressures associated with elections could boost fiscal expenditure, adding to inflationary pressures and both internal and external imbalances.
With the slowing of growth in 2012 and the recent moderation in year-on-year inflation, monetary policy in the region shifted towards a more accommodative stance. Policy rates in Pakistan were cut by 250 basis points in the second half of 2012, while Bangladesh, India and Sri Lanka cut policy rates in the first half of

2013.
Despite the growing trade deficits in Pakistan and Nepal in the 2012 calendar year, their current account positions were bolstered by robust migrant remittances inflows, and also by official transfers in the case of Pakistan.
The GDP growth in Pakistan and Nepal has remained well below the regional average in recent years. Remittances to the South Asia region are estimated to have increased by 12.3 percent in 2012 (the second highest growth among developing regions) to reach $109 billion.
This follows growth averaging 14 percent in the previous two years. India is the largest recipient among developing countries ($69 billion), while Bangladesh and Pakistan ($14 billion each) are among the top 10 developing country recipients of remittances. Remittance flows to Bangladesh and Pakistan have been particularly robust in US dollar terms, although Nepal and Sri Lanka recorded the largest increases as a share of GDP in 2012.
A steady increase in US dollar remittance inflows in recent years has helped to offset trade deficits in Nepal, Bangladesh and Pakistan, and to a smaller extent in Sri Lanka and India. Available data shows industrial production rose even more decidedly in Pakistan and Bangladesh.
However, inflation has moderated markedly in Pakistan, following a relatively strong pickup in the second half of 2012, the momentum of exports in Pakistan, despite a moderation in headline inflation to 5.1 percent (y/ y) in May, food inflation was a higher 6.5 percent.