Economy grows modestly in 2015/16: IPR

LAHORE: The country’s economic growth rate modestly picked up during the last fiscal year of 2015/16, while productive sectors of the economy remained sluggish with no visible efforts to address the structural issues, a think tank said on Monday.

The Institute of Policy Reforms (IPR), in its economic review report, said some economic indicators, including fiscal and current account deficits and inflation improved.

“For the first time in many years, the government achieved and exceeded its FBR (Federal Board of Revenue) tax collection target, which grew 20 percent,” the report said. “Current expenditure remained within budget. Low markup rates increased demand for private credit.”

The IPR, however, said the economy’s prospects depend on much-needed policy changes. “There are fundamental issues that prevent the economy to achieve sustained economic growth,” it said. “Economic growth must be based on two pillars: improved long-term fundamentals, and higher level of productivity.” 

The report said public debt has rapidly increased with some external financing procured at high cost.  It said the country’s external sector is weak. Exports fell in 2015/16, while foreign direct investment is low despite inflows from China.

Workers’ remittances are modestly growing. “However, they could drop or slow down by the effects of energy prices on Middle Eastern economies,” the IPR said.

Annual external financing needs will grow to $14.4 billion in 2019/20 from $7.3 billion in 2015/16. Short-term debt is expected to steeply grow to eight percent of GDP from 4.2 percent.

“So far we have not seen a major policy initiative to empower economic players and improve governance,” the IPR said. “Governments, federal and provincial, have yet to launch a meaningful program to invest in the people.” 

The report said industry grew 3.21 percent in 2015/16.  It said private sector credit increased 105 percent during the last fiscal year. Half of the additional credit went into fixed investment, although the share of manufacturing in new private investment declined. Similarly, savings and investment remained below the economy’s need to grow. 

“Questions remain about project selection, transparent procurement and effective project management,” the IPR said.

“These issues reduce the returns to the economy from PSDP (public sector development program) spending.”  The institute urged the policymakers to review the political economy to support growth. 

“Delay in addressing this issue leads to high government debt and does not allow sufficient public investment,” it said. “The economy needs an urgent and effective response to the constraining structural issues.”