World Bank asks Pakistan to build consensus on CPEC projects

South Asia Economic Focus

KARACHI: The World Bank has asked Pakistan’s government to build consensus among all the stakeholders to ensure that $46-billion China-Pakistan Economic Corridor (CPEC) projects deliver on its potential. 

“CPEC, if completed, could be a game changer for Pakistan, but is currently mired in political economy risks,” the World Bank said in its report, titled, ‘South Asia Economic Focus (Spring 2016), Fading Tailwinds’. 

“Furthermore, a prolonged slowdown in China could diminish financial inflows under these projects,” it said.

The twice-a-year report considered the lack of consensus on the CPEC projects as one of the risks posing to high-growth potential of the country’s economy. 

The World Bank observed that the CPEC, along with energy projects, spurred growth in large scale manufacturing and construction sectors. “Any demand-driven economic expansion as a result of CPEC’s implementation is expected to be limited in the short-run as increased investment will likely be offset by a significant increase in imports,” the bank said.   

The report said Pakistan’s economic growth is picking up in the current fiscal year, supported by falling commodity and fuel prices, increased energy supply and improved law and order situation. 

“Growth is projected to accelerate modestly from 4.5 percent in 2016 to 4.8 percent in 2017, supported by growing industry and services and greater investment as well as buoyed by low oil prices and substantial remittances,” it said.  

The bank, however, suggested the government to maintain the momentum in reforming its business climate, access to finance and trade regime.

“As the election year approaches in 2018, the government may find it difficult to implement unpopular decisions, particularly on taxation and energy,” it said.

“Pakistan should also monitor a key driver of remittances: public investment cuts and the resulting restrictions on foreign employment in GCC (Gulf Cooperation Council) countries, particularly in construction, where many Pakistani migrants are employed.” 

The World Bank said South Asia is the fast-growing region in the world, escaping the turbulence in the international markets.

It said India will continue to lead the regional economies. Global growth dropped to 2.4 percent last year from 2.6 percent in the preceding year. 

The bank, however, said anemic global economy has bitten exports revenue of Pakistan, “revealing the country’s vulnerability to a narrow base and a high concentration in few destinations.”

“Imports also contracted in early FY2016 but seem to be recovering since November 2015, particularly in food and machinery,” it said. 

The report forecast that current account deficit will rise to 1.3 percent by FY2018, assuming that prices would continue to remain soft. “A decline in exports in FY2016 (followed by marginal export growth forecasts for the next two years) and an expected increase in imports will weaken the trade account,” it said.

Further, the World Bank acknowledged the marked improvement in the tax collection by the Federal Board of Revenue, accounting for 70 percent of the country’s total tax revenue, because of the ongoing fiscal reforms.

“Tax collection is projected to improve as the government continues with efforts to rationalise tax exemptions in the upcoming budget, while improving compliance and administration,” it said.