ADB says added reforms, measures to help push up Pakistan’s economy

Bank slightly cuts 2016 Asia growth outlook

ISLAMABAD: The Asian Development Bank (ADB) said on Monday Pakistan’s economy would likely grow at a stable pace in the current and next fiscal years as the ongoing reforms and stabilisation measures could provide additional lift to the growth.

“In Pakistan, further improvements in energy supply, higher infrastructure investments, and an improved security environment will help push up growth in 2016 and 2017,” the Manila-based bank said in its latest report on Asian Development Outlook.

The latest report is in n a supplement to the bank’s Asian Development Outlook 2016 (ADO 2016), released last March.

The bank said growth in Asia and the Pacific’s developing economies for 2016 and 2017 will remain solid as firm performances from South Asia, East Asia and Southeast Asia help offset softness from the US economy, and near-term market shocks from the Brexit vote. The bank, however, marginally lowered its 2016 growth forecast for developing Asia to 5.6 percent, from its previous projection of 5.7 percent. For 2017, growth is seen unchanged at 5.7 percent.

“Growth in 2016 and 2017 is led by South Asia, and India in particular, which continues to expand strongly, while the People’s Republic of China is on track to meet earlier growth projections,” the bank said.

Shang-Jin Wei ADB’s Chief Economist said although the Brexit vote has affected developing Asia’s currency and stock markets, “its impact on the real economy in the short term is expected to be small.”

“However, in light of the tepid growth prospects in the major industrial economies, policy makers should remain vigilant and be prepared to respond to external shocks to ensure growth in the region remains robust,” Wei added.

The reports said the economic outlook for South Asia remains strong, with growth on track to meet Asian Development Outlook 2016 projections of 6.9 percent in 2016 and 7.3 percent in 2017.

The report projects inflation for developing Asia to come in at 2.8 percent for 2016 and 3.0 percent for 2017—a 0.3 percentage point rise for each year from the previous forecasts.

The rise is due largely to a recovery in oil and food prices. Oil prices rebounded from early-year lows and food prices rose nearly 9 percent in June 2016 from the year earlier, marking the fifth consecutive month the index has risen in value. 

South Asia is expected to be the fastest growing subregion, led by India, whose economy has shrugged off global headwinds and is on track to meet ADB’s March fiscal year 2016 (year to March 2017) projected growth target of 7.4 percent, supported by brisk consumer spending and an uptick in the rural economy.

“In Bangladesh and Pakistan, initial government estimates of GDP growth in FY2016 (ended 30 June 2016) beat ADO forecasts, but this was balanced somewhat by slower growth in Nepal,” the report said.

Industry growth in Bangladesh in the fiscal year 2016 was higher than expected in line with a strong garment sector. Services growth also boosted the economy, supported by higher wages in the public sector. However, the recent terror attack in Dhaka could affect investor confidence and undermine growth.

In contrast, the slowing pace of earthquake reconstruction has dampened Nepal’s prospects Economic growth in India gained momentum in the final quarter of fiscal year 2015 (ended 30 March 2016) and pushed full-year growth to 7.6 percent in line with the ADO 2016 estimate.

Brisk consumer spending propelled India’s economic growth to its highest in five years. As measured by the purchasing managers’ index, manufacturing steadily inched up over the first quarter of fiscal year 2016, reaching 51.7 percent in June as new orders proliferated.

“However, actual industrial production suffered a small contraction, dragged down by a larger contraction in manufacturing output,” the bank said. “After a weak start, the monsoon picked up in mid-June and overcame the early rain deficit by the first week of July.”