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Thursday March 28, 2024

ADB revises up growth forecast to 5.2pc for 2016/17

By Tariq Ahmed Saeedi
September 28, 2016

KARACHI: The Asian Development Bank (ADB) is bullish over Pakistan’s economic prospects this fiscal year, upgrading its growth forecast to 5.2 percent on improved energy supply and security and a rising investment in China-Pakistan Economic Corridor projects, it said on Tuesday.

In March, the Manila-based bank put the growth at 4.8 percent. The ADB, in an update of its flagship annual economic publication Asian Development Outlook (ADO) 2016, however, said unexpectedly high oil prices or a marked slowing of remittances pose risks to the economic outlook in the short term.

“A major impetus to growth in the FY2017 and beyond will be the implementation of $46 billion program of infrastructure spending on roads, railways, pipelines, and electric power in an economic corridor project linking Pakistan with the People’s Republic of China,” the ADB said. “The planned reduction in the FY2017 budget deficit will further enhance funding for private sector credit and better enable it to meet rising domestic demand.”

The study said the investment spending in the projects related to China-Pakistan Economic Corridor is to increase current account deficit to an estimated $5 billion or 1.6 percent of GDP in the current fiscal year of 2016/17 from the modest 0.9 percent in 2015/16.

The lender also edged up the forecasts for inflation to 4.7 percent on an expected oil price rises and stronger domestic demand in an increasingly supply constrained economy.

It said growth accelerated to 4.7 percent in 2015/16 on the cumulative impact of the government’s macroeconomic and structural reform program, sharply lower oil prices, and improved security, outpacing the ADO 2016 forecast of 4.5 percent despite a major crop failure. Inflation of 2.9 percent and the current account deficit of 0.9 percent were lower than expected, while foreign exchange reserves strengthened and the budget deficit shrank.

The ADB further said the government debt ratios have long been high by regional standards in Pakistan. It called for a prudent debt management to stave off a slowdown in economic growth or a significant rise in the effective interest rate.

“Interest rates pose less risk to India and Pakistan, where public debt is held mostly by domestic investors,” it added. “However, where a significant share of such debt is short term, as in Pakistan, rollover risks are high and debt dynamics remain vulnerable to shocks.”

The bank, citing Global Climate Risk Index 2016, said Pakistan was one of the 10 most affected countries during the last decade. It said disasters, such as floods and storms caused losses from damage to property, crops, and livestock totaling $21 billion in Pakistan between 2000 and 2015. This is compared with $6 billion in Bangladesh.

The ADB said the end of the International Monetary Fund’s program could relax focus on monetary and fiscal disciplines, especially with a parliamentary election scheduled for 2018, and distract attention from the structural reform agenda that is essential to maintaining sustainable and equitable growth.