Pakistan’s GDP to remain at 5.5pc in current fiscal year: WB

ISLAMABAD: While lowering down GDP growth projections, the World Bank (WB) has estimated that Pakistan’s Gross Domestic Product (GDP) would touch 5.5 percent for the current fiscal year 2017-18 against officially envisaged target of 6 percent.

According to WB’s report titled “Global Economic Prospects” for 2018 released on Wednesday stated that Pakistan’s GDP growth was projected to go up to 6 percent medium term by touching 5.8 percent by FY2019 and 6 percent by FY 2020.

The WB report states that increasing contingent liabilities related to infrastructure projects (e.g. Pakistan), debt write offs for farmers (e.g., India), and slippages relating to upcoming elections and weak tax revenues (e.g. Bangladesh, Nepal, Pakistan) could derail fiscal consolidation effort.

“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 WB report states.

It further states that the main risks to the outlook are domestic, including fiscal slippages (e.g., Bangladesh, Maldives, Pakistan), setbacks to reforms to resolve corporate and financial sector balance sheet deterioration (e.g. Bangladesh, India), disruptions due to natural disasters, and persistent security challenges weakening domestic demand (e.g. Afghanistan).

As an external risk, an abrupt tightening of global financing conditions or a sudden rise in financial market volatility could set back regional growth. On the other hand, stronger-than-expected global growth could benefit the more open economies in the region in the near term.

In South Asia, the WB report states that growth in the region is forecast to accelerate to 6.9 percent in 2018 from an estimated 6.5 percent in 2017. Consumption is expected to stay strong, exports are anticipated to recover, and investment is on track to revive as a result of policy reforms and infrastructure upgrades. Setbacks to reform efforts, natural disasters, or an upswing in global financial volatility could slow growth.

India is expected to pick up to a 7.3 percent rate in fiscal year 2018/19, which begins April 1, from 6.7 percent in FY 2017/18. Pakistan is anticipated to accelerate to 5.8 percent in FY 2018/19, which begins July 1, from 5.5 percent in FY 2017/18.

In Pakistan, growth continued to accelerate in FY2016/17 (July-June) to 5.3 percent, somewhat below the government’s target of 5.7 percent as industrial sector growth was slower than expected.

Activity was strong in construction and services, and there was a recovery in agricultural production with a return of normal monsoon rains. In the first half of FY2017/18, activity has continued to expand, driven by robust domestic demand supported by strong credit growth and investment manufacturing and services sectors. Robust private consumption was complemented by strong public investment growth projects related to the China-Pakistan Economic Corridor. Meanwhile, the current account deficit widened to 4.1 percent of GDP compared to 1.7 percent last year, amid weak exports and buoyant imports.

Outside India, fiscal consolidation slowed in 2017 as a result of revenue shortfalls and increased government spending (e.g., Maldives, Pakistan). Current account deficits gradually widened across the region (e.g. India, Bangladesh, Pakistan). Balance sheet weakness for corporate (e.g. India) and financial sectors (e.g. Bangladesh, India) continued to weigh on private investment. In particular, non-performing loan ratios remained high, at around 10 percent, despite progress in some countries (e.g. Maldives, Pakistan and Afghanistan).