Low commodity prices, rising infrastructure spending and reforms lifted domestic demand, improved business climate
KARACHI: The World Bank remained bullish on Pakistan’s growth prospects for the next three years, revising its earlier projection notches up on large cross-border infrastructure investment, reforms and restoration of investor confidence.
“The uptick in activity was spurred by a combination of low commodity prices, rising infrastructure spending, and reforms that lifted domestic demand and improved the business climate,” the Washington-based lender said in its flagship report issued on late Tuesday.
The bank forecast the GDP growth in the South Asia’s second biggest economy at 5.2 percent for 2017. It added that the growth is expected to accelerate from 5.5 percent in 2018 to 5.8 percent in 2019, “reflecting improvements in agriculture, infrastructure, energy and external demand.”
In June last, the World Bank forecast the GDP growth rate at 4.5 percent for 2017 and 4.8 percent for 2018. The bank said persistent security and political tensions and rising debt levels are domestic, while jump in oil prices and prolonged slowdown in key export markets are external risks to the growth outlook. It advised soft key policy rate to spur growth. “Accommodative monetary policy stance is expected to support activity,” it said.
The bank, in a report, titled, “Global Economic Prospects: Weak Investment in Uncertain Times”, said the investment growth has recovered in a number of countries, including Pakistan. “However, investment growth remains below its long-term average in more than half of all commodity-importing countries.”
The bank said the successful conclusion of the International Monetary Fund’s (IMF) extended fund facility program, aimed at supporting reforms and reducing fiscal and external sector vulnerabilities, lifted consumer and investor confidence.
Pakistan implemented various reforms under the IMF program and World Bank’s development policy credits, tackling key structural challenges, such as reforms to ease energy constraints, tax policy and administrative reforms to raise revenues, and strengthening independence of the State Bank of Pakistan to reduce vulnerabilities.
The bank said the China-Pakistan Economic Corridor (CPEC) project will increase investment in the medium-term, and alleviate the transportation bottlenecks and electricity shortages.
The bank estimated the growth rate at 4.7 percent for 2016. The bank said the appreciating trade-weighted real exchange rate weakened the export competitiveness in Pakistan and India. “Lower energy import bills mitigated the negative impact of reduced exports and remittances on current account balances which, except for Bangladesh, mostly continued to be in the deficit.”
It said Pakistan’s soft inflation was due to fiscal restraint and pass-through of nominal exchange rate appreciation.
Budget consolidation in Pakistan brought down the fiscal deficit to 4.6 percent in 2016. “Reductions in energy subsidies and an increase in excise taxes eased spending pressures in India, Pakistan and Sri Lanka,” said the bank. It, however, said accommodative fiscal policy ahead of general elections may cause widening of fiscal deficit.
It said privatisation proceeds from state-owned enterprises both in Pakistan and India fell short of expectations. “Large-scale borrowing to fund infrastructure projects in Maldives, Pakistan and Sri Lanka has led to elevated public debt.”
Afghanistan was the weakest country in the region in terms of growth. The bank estimated its growth at 1.2 percent in 2016. “This is largely due to slowing domestic demand, deteriorating security, and drought which affected agriculture output,” it said. “Resettlement of returning refugees from Pakistan further exerted fiscal pressure, constraining infrastructure investment.”
