Pakistan’s economic growth is expected to increase gradually, and the economy is projected to grow by five percent in fiscal year 2017 and 5.4 percent in fiscal year 2018, according to the World Bank (WB) report.
The twice-a-year WB report “South Asia Economic Focus” states that the gradual growth trend is underpinned by increased public investment supported by China Pakistan Economic Corridor (CPEC).
A delay in the completion of the CPEC projects, as evident from the first year performance, and inability of government to mobilise revenues and rationalise expenditures can affect investment and hurt economic growth during the projection period.
Economic growth is primarily driven by public and private consumption; however some rebalancing in growth components is expected due to a rise in investments.
This will primarily be driven by infrastructure projects under the CPEC and public investment.
These projects are expected to accelerate growth in the domestic construction industry and increase electricity generation. Improved electricity availability will support growth in the industry and services sectors.
The report further states that Pakistan maintained macroeconomic stability with government’s better economic management under the recently concluded International Monetary Fund (IMF) programme.
During the three-year Extended Fund Facility (EFF) programme, the economy has achieved macroeconomic stability primarily on the back of fiscal discipline shown by the government and a reduction in the current account deficit due to falling global commodity prices and buoyant remittances.
Economic growth, though gradual, continues to recover. Poverty has also shown a steady decline over the past 15 years.
Increasing remittances have likely helped the pace of poverty reduction in recent years. Sustainable and inclusive growth and poverty reduction, however, will require greater private sector investment and the development of infrastructure, as well as a continued focus on fiscal consolidation and structural reforms.
This stability has set the stage for the government to further implement structural reforms to help unlock sustained and inclusive growth in the medium term.
The current account deficit is expected to widen during fiscal year 2017 and fiscal year 2018.
The key contributor to this will be a widening trade deficit due to moderate growth in exports and rapid growth in the CPEC related imports.
However, continuous growth in remittances and financial flows will help in financing the current account deficit, stated in the report.
The fiscal deficit is projected to be 4.2 percent in fiscal year 2017 and 4 percent in fiscal year 2018.
This improvement in fiscal accounts hinges upon the government’s will to persist with the fiscal consolidation through revenue mobilisation efforts and expenditure rationalisation.
Increased economic activity, and marginal rise in global oil prices are expected to increase domestic prices, with inflation projected to increase from 2.9 percent in fiscal year 2016 to 4.6 percent in fiscal year 2017 and five percent by fiscal year 2018.
Pakistan’s external and fiscal balance continues to benefit from low global oil prices; however a sudden upward shock to these prices can disrupt this stability.
Remittances are projected to grow moderately but a further slowdown in public spending in Gulf Cooperation Council (GCC) economies could affect remittances growth negatively and widen the current account deficit and slow down the pace of poverty reduction.
According to the report South Asia has defied a sluggish world economy and solidified its lead as the fastest growing region in the world in 2016, a new World Bank report said on Tuesday.
Led by solid performance in India, economic growth is expected to gradually accelerate from 7.1 percent in 2016 to 7.3 percent in 2017.
In India, GDP growth will remain strong at 7.6 percent in 2016 and 7.7 percent in 2017, supported by expectations of a rebound in agriculture, civil service pay reforms supporting consumption, increasingly positive contributions from exports and a recovery of private investment in the medium term.
However, India faces the challenge of further accelerating the responsiveness of poverty reduction to growth, promoting inclusion, and extending gains to a broader range of human development outcomes related to health, nutrition, education and gender. -Business Recorder