ADO considers plus and minus points of Pakistani economy

ISLAMABAD: The Asian Development Bank (ADB) has lowered its projection of GDP growth rate for Pakistan at 4.5 percent compared to officially envisaged target of 5.5 percent for the current fiscal year 2015-16.
However, the ADB projected slashing down inflationary pressures as it would come down to 5.1 percent for ongoing financial year. According to Asian Development Outlook (ADO) for 2015-16 released by the ADB on Tuesday, stating that inflation is now expected to be slightly higher in FY2016 than in FY2015 as oil prices recover. The ADB’s update sees lower inflation standing at 5.1 percent than forecast earlier of 5.8 percent, but inflationary pressures may come from food prices pushed higher by possible supply shortages following floods in July 2015. Monetary policy is expected to remain supportive.
About GDP growth rate, the ADB states that it is expected to edge up to 4.5% in FY2016, assuming continued low prices for oil and other commodities, the expected pickup in growth in the advanced economies, and some alleviation of power shortages.
Prospects for large-scale manufacturing remain subject to progress on power supply, the ADO stated. “Plans to build an economic corridor linking Kashgar in the People’s Republic of China to the Pakistani port of Gwadar were announced in April, and this mega project could significantly boost private investment and growth in the coming years,” the ADO further states.
Provisional GDP growth in FY2015 (ended 30 June 2015) matched the ADO 2015 forecast and stood at 4.2 percent. It was led by services as growth in manufacturing slowed. Industrial growth was hobbled by a slowdown in large-scale manufacturing to 3.3% owing to continued power shortages and weaker external demand. The resilience of small-scale manufacturing and construction sustained industrial growth at 3.6%. Agriculture growth remained modest at 2.9%. Private fixed investment slipped to equal 9.7% of GDP from 10.0% a year earlier because of continuing energy constraints and the generally weak business environment that has depressed investment for several years.
Headline inflation sharply declined in FY2015 and improved on the ADO 2015 projection. Inflation for both food and other items dropped significantly, reflecting adequate food supplies and the transmission into prices of lower global prices for oil and other commodities. The current account deficit narrowed in FY2015 from 1.3% in FY2014. The reasons were lower oil imports (which had been 35% of the total), larger inflows under the Coalition Support Fund, and robust workers’ remittances.
The benefit of the 18% decline in expenditures on oil imports was offset to some extent by increased imports of machinery and metal products, as well as of food and transport equipment. In FY2016, the current account deficit is expected to widen marginally as slightly higher oil prices and stronger growth in the advanced countries translates into an expansion in trade. Nevertheless, exports are expected to increase only slightly after 2 years of stagnation, as manufacturing continues to suffer under energy shortages and low cotton prices see only a modest increase. In Pakistan, for example, restriction imposed by men appears to be a critical constraint that keeps female workforce participation low. While 40% of unemployed women report having free time on their hands, a quarter of unemployed women say they would like to work if they could find a suitable job. Female workforce participation could easily double if these women were employed. The incentive is quite strong, as highly educated women who work outside the home earn twice as much as those who stay at home. In the region, corporations in Indonesia and Pakistan have the largest share of foreign currency debt maturing between by 2017. In developing Asia, India, and Pakistan are relatively highly leveraged. The projected current account deficit in South Asia is expected to worsen only slightly, by 0.1% of GDP, to 1.1% in 2015 and 1.5% in 2016. The larger countries-India, Bangladesh, and Pakistan-all have deficits within 1.5% of GDP, and revisions are slight. All three have experienced falling exports and imports to date in 2015. Falling prices have greatly helped these large oil importers.