KARACHI: The World Bank on Wednesday projected growth at 5.5 percent for the current fiscal year of 2017/18 on rise in investment and recovery in exports sector, but the Bank termed the domestic risks, including fiscal slippages as the challenge to the outlook.
“In Pakistan, growth is forecast to pick up to 5.5 percent in FY2017/18, and reach at an average 5.9 percent a year over the medium term on the back of continued robust domestic consumption, rising investment, and a recovery in exports,” the World Bank said in its flagship global economy report.
The Washington-based financial institution said the main risks to the outlook are domestic, including fiscal slippages.
“Increasing contingent liabilities related to infrastructure projects, and slippages relating to upcoming elections and weak tax revenues could derail fiscal consolidation efforts,” the institution said in the report, titled ‘Global Economic Prospects: Broad-based upturn, but for how long’.
The Bank said fiscal consolidation slowed in 2017 as a result of revenue shortfalls and increased government spending in Pakistan. Pakistan was among the oil-importing countries that had been stick to accommodative monetary policy in response to plunge in oil prices. The country’s central bank maintained interest rate at decades-low of 5.75 percent for over a year, jacking up private sector credit offtake.
The World Bank said elevated credit growth supported investment, while there has been an improvement in non-performing loans ratio.
“In Pakistan, growth continued to accelerate in FY2016/17 to 5.3 percent, somewhat below the government’s target of 5.7 percent as industrial sector growth was slower than expected,” it added. “Activity was strong in construction and services, and there was a recovery in agricultural production with a return of normal monsoon rains.”
The financial institution said activity has continued to expand in the first half of FY2017/18, driven by robust domestic demand supported by strong credit growth and investment projects related to the China-Pakistan Economic Corridor. The institution further said current account deficits gradually widened across the region.
“The current account deficit (in Pakistan) widened to 4.1 percent of GDP compared to 1.7 percent last year, amid weak exports and buoyant imports,” it added.
Exports recovered 11 percent to $11 billion in the first half of the current fiscal year. Imports also surged 19 percent to $28 billion during the July-December period.
Growth in exports is giving a much-needed respite to anemic external sector bitten by soaring imports, which albeit pro-development is a main catalyst to widening current account deficit.
The World Bank didn’t present the current account deficit forecast for FY2018, but it may remain between 4 and 5 percent of GDP as estimated by the State Bank of Pakistan (SBP).
Market dynamics-based rupee value is expected to improve competitiveness of exports sector in the international market.
Last month, rupee shed more than five percent in the consecutive three sessions in the interbank market. Earlier, rupee had traded in a tight range of 104-105/dollar since December 2015.
