World Bank forecasts growth at 5pc for FY17, 5.4pc for FY18 

Fiscal indiscipline key challenge

KARACHI: After having witnessed a 5.7 percent growth during the last fiscal year, Pakistan’s economy will grow five percent in the current and 5.4 percent in the next fiscal years, the World Bank said in its latest report. 

The Washington-based lender, in its ‘South Asia Economic Focus Fall 2016’ report, estimated the growth rate at 5.7 percent for 2015/16 on 15.1 percent surge in government and seven percent increase in private consumptions.

“Despite experiencing negative growth in the agriculture sector, overall economic growth in FY2016 experienced moderate acceleration compared to FY2015,” the bank said. “Industrial sector recorded significant growth due to the better performance of cement, fertiliser and automobile industries, compensating the adverse impact of contraction in commodity production.”

The bank said the government’s measures to mobilise revenue helped it reduce fiscal deficit without curtailing the investment spending during the last fiscal year. Gross fixed capital investment grew 5.7 percent during 2015/16. 

The bank said the government consumption will soar 8.9 percent in 2016/17, while private consumption is to increase 4.4 percent. 

“Economic growth is primarily driven by public and private consumption, however some rebalancing in growth components is expected due to a rise in investments,” the bank said.

“This will primarily be driven by infrastructure projects under the CPEC and public investment.”

Gross fixed capital investment is projected to increase 8.2 percent in the current fiscal year.    

The bank, however, warned that fiscal discipline is imperative for Pakistan to underpin investment and growth outlooks. 

“A delay in the completion of CPEC projects, as evident from the first year performance, and inability of government to mobilise revenues and rationalise expenditures, can affect investment and hurt economic growth during the projection period,” it said.    

The bank further said slowdown in remittances and a rise in international oil prices pose risks to the growth projection. 

It said the external and fiscal balance continues to benefit from low global oil prices. “However, a sudden upward shock to these prices can disrupt this stability,” it added. 

The bank projected the remittances to grow moderately but, it said, “a further slowdown in public spending in Gulf Cooperation Council economies could affect remittances growth negatively and widen the current account deficit and slow down the pace of poverty reduction.”

The bank’s data showed that exports of goods and services would inch up 0.7 percent in the current fiscal year, while imports would surge 4.5 percent.

The bank said the current account deficit is expected to widen during FY2017 and FY2018.  “The key contributor to this will be a widening trade deficit due to moderate growth in exports and rapid growth in CPEC-related imports,” it added.

The World Bank acknowledged the positive impact of the International Monetary Fund’s (IMF) program on the macroeconomic indicators due to fiscal discipline and reduction in current account deficit during the last fiscal year. 

The country recently concluded the three-year $6.7 billion extended fund facility program of the IMF.

“This stability has set the stage for the government to further implement structural reforms to help unlock sustained and inclusive growth in the medium term,” it added. “Sustainable and inclusive growth and poverty reduction will require greater private sector investment and the development of infrastructure, as well as a continued focus on fiscal consolidation and structural reforms.” 

The report said South Asia is increasingly ahead of other developing regions, with emerging market peers hit directly or indirectly by a slowing China, and oil exporting countries suffering from low oil prices.  

“With India expected to further consolidate its position as the fastest-growing large economy, the region can count on being pulled forward. With the exception of Afghanistan and Nepal, all countries in South Asia will either sustain or improve upon last year’s growth rates in 2016,” it said.

The private and public consumptions will remain important growth pillars for the entire region, but investment will also play an instrumental role, according to the World Bank.