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December 12, 2019

ADB keeps Pakistan’s growth forecast unchanged at 2.8pc


December 12, 2019

KARACHI: Asian Development Bank (ADB) kept its growth forecast for Pakistan unchanged at 2.8 percent for the current fiscal year of 2019/20 in its report on Wednesday, seeing a recovery in the economy that reeled from twin deficits in the recent past.

“…signs of economic stabilisation are emerging in FY2020, as forecast in the update,” ADB said in Asian Development Outlook (ADO) supplement.

In September, ADO Update trimmed growth projection for Pakistan to 2.8 percent in FY2020 from 3.3 percent in FY2019. “Growth in 2020 is now forecast lower as the government implements a comprehensive program of macroeconomic and structural reform to stabilise the economy,” the ADO Update said then.

The government, after taking the office last year, faced adverse economic crisis with the country’s dollars reserves having plunged to an alarming level that was not sufficient to cover less than two months of import bills. Fiscal deficit widened on a sharp slowdown in revenue collection.

Twin deficits made the administration approach the International Monetary

Fund (IMF) for support to the balance of payment.

The IMF-backed reforms are restoring confidence of foreign lenders, donors and investors to pour in their funds in the economy.

Encouraged by the structural changes, ADB also resumed its policy-based lending to Pakistan and committed $2 billion in loans for the current fiscal year to further shore up the country’s public finances.

In April, ADB forecast growth to decelerate further to 3.6 percent in FY2020 from 3.9 percent “as macroeconomic challenges continue and despite steps to tighten fiscal and monetary policies to rein in high and unsustainable twin deficits”.

Manila-based lender, however, is not optimistic about inflation downtrend in near future despite increase in interest rates and appreciation of rupee against the US dollar.

“Despite tight monetary policy and a modestly strengthening currency, inflation in Pakistan averaged 10.1 percent in the first 3 months of FY2020,” ADB said in the ADO supplement.

In September, inflation forecast for FY2020 was raised to 12 percent from 7 percent projected for the current fiscal year in April.

The central bank has adopted tight monetary policy and raised interest rates to battle inflation since last year. The interest rates have been cumulatively increased 750 basis points to eight-year high of 13.25 percent since January 2018.

Although the higher interest rates opened floodgate of foreign investment in government securities, they held down private credit offtake and made bank lending expensive for consumers looking for house and auto financing.