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July 19, 2019

ADB says twin deficits mar Pakistan’s growth outlook


July 19, 2019

KARACHI: The Asian Development Bank (ADB) on Thursday said widening current and fiscal account deficits would continue to impede Pakistan’s growth that has already fallen to an eight-year low of 3.3 percent in the last fiscal year of 2018/19.

“Rising twin deficits in the fiscal and current accounts weigh on Pakistan’s outlook,” the Manila-based lender said in the Asian Development Outlook (ADO) supplement. ADB, however, didn’t mention the growth projection for the current fiscal year of 2019/20. ADB, in its ADO 2019 released in last April, projected Pakistan’s growth at 3.6 percent in FY2020.

The bank, in the ADO supplement, said preliminary official estimates for Pakistan show growth in FY2019 deteriorating to 3.3 percent, “the lowest rate in 8 years, pulled down by weak performance across the board”. Growth estimate for FY2019 has been revised down from 3.9 percent.

“Inflation in Pakistan almost doubled from 3.8 percent in the same period of FY2018 to 7.2 percent (in FY2019),” the bank added. The ADB said the economic outlook is robust for South Asia, with growth projected at 6.6 percent in 2019 and 6.7 percent in 2020, albeit lower than forecast in April. The growth outlook for India has been cut to 7 percent in 2019 and 7.2 percent in 2020 because the fiscal 2018 outturn fell short.

ADB said developing Asia would maintain strong but moderating growth over 2019 and 2020, “as supportive domestic demand counteracts an environment of global trade tensions”. The bank maintains growth forecasts for developing Asia at 5.7 percent in 2019 and 5.6 percent in 2020—unchanged from its April forecast. These growth rates are slightly down from developing Asia’s 5.9 percent growth in 2018.

Excluding the newly industrialised economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei, China, the regional growth outlook has been revised down from 6.2 percent to 6.1 percent in 2019 and maintained at that rate in 2020.

ADB said deepening trade tension between China and the United States remains the largest downside risk to this outlook, “despite an apparent truce in late June that could allow trade negotiations between the two countries to resume”.

“Even as the trade conflict continues, the region is set to maintain strong but moderating growth,” ADB Chief Economist Yasuyuki Sawada said in a statement. “However, until the world’s two largest economies reach agreement, uncertainty will continue to weigh on the regional outlook.”

The growth outlook for East Asia in 2019 has been revised down to 5.6 percent because of slower than expected activity in Korea. The subregion’s growth outlook of 5.5 percent for 2020 is unchanged from April. Growth for the subregion’s largest economy, China, is also unchanged, with forecasts of 6.3 percent in 2019 and 6.1 percent in 2020, as policy support offsets softening growth in domestic and external demand. The outlook for Southeast Asia has been downgraded slightly to 4.8 percent in 2019 and 4.9 percent in 2020 due to the trade impasse and a slowdown in the electronics cycle.

In Central Asia, the growth outlook for 2019 has been revised up to 4.3 percent on account of an improved outlook for Kazakhstan. Central Asia’s growth outlook of 4.2 percent for 2020 is unchanged from April. The growth outlook in the Pacific—3.5 percent in 2019 and 3.2 percent in 2020—is unchanged, as the subregion continues to rebound from the effects of Cyclone Gita and an earthquake in Papua New Guinea, the subregion’s largest economy.

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