The World Bank published a report titled “South Asia Economic Focus” on October 4, 2014. The report contains a review of the collective and individual economic performances of South Asian countries in 2013-14, as well as giving an outlook for 2014-15. The report is a product of the Office of the Chief Economist, South Asian region, which is based in Delhi.
According to the statistics contained in the report, Pakistan emerges as the ‘sick economy’ of South Asia, although this is not prominently highlighted in the report. Among the eight South Asian economies, which are all members of Saarc, Pakistan has the lowest GDP growth rate (except for Afghanistan’s); the lowest export growth in 2013-14 (of about one per cent compared with Bangladesh’s 12 per cent, India’s seven per cent, and Sri Lanka’s more than 13 per cent); the highest rate of inflation (except for India’s); the highest fiscal deficit and the lowest import cover of foreign exchange reserves (of two months as compared with more than five months of Bangladesh, eight months of India and six months of Sri Lanka).
Despite the unfavourable comparison with other South Asian countries, the Bank’s assessment of Pakistan’s performance in 2013-14 is positive and it states in the opening sentence that “Pakistan’s economy was gathering pace in FY2013-14”. However, the basis for such a statement is questionable. The GDP growth rate in 2013-14 is likely to be below 3.5 per cent, given the poor performance of the large-scale manufacturing sector in the last four months of the year. This is the lowest growth rate in the last four years. The agriculture sector has also shown a lower growth rate of 2.1 per cent compared with 2.9 per cent in 2013-14, primarily due to the failure of the cotton crop. Exports grew by only 1.4 per cent in 2013-14, while private investment actually declined by 1.6 per cent in real terms.
The Bank proceeds further to say that “since mid-August, a succession of political blows have knocked steam out of the economy”. This is not substantiated by facts. The month of August 2014 actually saw an extraordinarily high growth rate of more than 20 per cent in FBR tax revenues. During this month, the international trade (exports and imports) volume also increased by as much as 25.2 per cent. On a month-to-month basis, the consumer price index remained virtually unchanged in August and September. Therefore, there is no evidence of any direct negative impact of the dharnas on the economy.
The Bank also praises the “promising progress” by the new government in 2013-14 in implementing a “solid reform programme”, especially in the energy sector. Power tariffs were raised substantially by almost 65 per cent in some cases. There have been, however, no improvements in the management of the sector. Electricity generation has increased by a modest four per cent, more or less, in line with the growth in demand. Consequently, there has been no improvement in the power load-shedding situation. Pepco’s transmission and distribution losses have remained unchanged at the relatively high level of 17.5 per cent. Billing losses have risen sharply by 25 per cent to Rs119 billion. The fuel mix has worsened due to the diversion of natural gas from power generation to fertiliser (urea) production.
On top of all this, transmission bottlenecks have emerged and there have been vociferous complaints recently about over-billing. The circular debt has come back in a big way and estimates are that it may already have exceeded Rs250 billion .
The Bank also highlights the improvement in the balance of payments and the significant strengthening of the reserve position. Foreign exchange reserves did increase from $6 billion in at the end of June 2013 to $9.1 billion at the end of June 2014. However, this does not reflect any improvement in the underlying current deficit position or a major improvement in non-debt creating capital inflows. The bulk of the improvement has come from a peak in net external borrowing of $5.6 billion and one-off inflows. This highlights the continuing vulnerability of the external payments position.
Turning to the outlook for 2014-15, the Bank is quite optimistic about Pakistan’s prospects. It expects GDP growth rate to range from 4.3 per cent to 4.6 per cent, inflation to fall to eight per cent, the current account deficit to rise marginally from 1.2 per cent to 1.4 per cent of the GDP and the fiscal deficit to fall further to five per cent of the GDP.
It is surprising that even though the report came out on October 4, it shows no awareness of the devastating floods which hit Pakistan, especially Punjab, in September 2014. According to estimates by the UN Office for the Coordination of Humanitarian Affairs, 2.53 million people have been affected, 364 lives lost, 107,000 properties damaged and more than 2.4 million acres of crop area inundated. This will imply significantly lower output, especially of rice and cotton. Inclusive of indirect effects, this could reduce the GDP growth rate by up to 1.5 per cent, raise the inflation rate, especially of food items, and necessitate higher imports to make up for supply shortages. Therefore, the Bank’s forecasts for 2014-15, following the floods, are no longer valid.
The final paragraphs of the report show a degree of concern for the first time. Mention is made of the fact that Pakistan’s IMF programme is at a “stand still”. This is attributed to delays in adjustment of power tariffs, implementation of the privatisation programme and in reforms requiring legislative approval (especially with regard to the SBP’s autonomy).The Fund has projected external financing requirements of $10.8 billion in 2014-15. How will this large gap be filled if the Programme remains suspended?
Overall, the World Bank report is positive and appreciative of Pakistan’s recent and continuing progress. This should have a favourable impact on perceptions of foreign investors. But the reality is different, with the country moving into a period of some uncertainty both, on the political and economic fronts.
Published in The Express Tribune, October 24th, 2014.
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COMMENTS (15)
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@FAZ Dear Friend Call center business is shrinking very fast in India, It is going to Philippines coz in Indian Average salary expectations are high these days, thus only KPO & Tech Solutions are in India. BTW let me assume you didnt aware about India & IT. Good for you keep studing in Madrasas
The problem is, this report uses the cooked up false financial numbers supplied by the Pakistani establishment to global financial institutions. The truth is probably a lot more dire.
It is also very pertinent to note that while Pakistan has the lowest economic indicators in South Asia, it does boast of the highest population growth rate. This is a double whammy that is bound to make Pakistan's economic regression faster in the future. Pakistan's GDP has to grow at at least 8% to create jobs for the huge number of workers joining the job market each year.
I wonder how that optimism will be effected when the IMF stops funding Pakistan and declares Pakistan in default on the outstanding balance? Lets not forget that IMF refused to fund the last installment which was rolled over to the December installment ... but Sharif just announced he's not going to adjust the energy subsidies which probably means that the IMF won't fund anything in December.
Ponder for yourself. What kind of customers do credit card issuing banks prefer?
They really do not like the ones who pay their credit card bill in full each month since what they actually get is negative interest on their capital. Nor do they like deadbeats who default and end up in litigation. The customers they actually like are the ones who will pay their minimum installment along with usurious interest charges and all sorts of fees.
Pakistan is therefore golden as far as the World Bank is concerned because while they know that Pakistan is teetering at the edge of default, at the same time it will try its best to not actually have one and would not mind mortgaging it's future to pay for the luxuries of today. A better barometer of Pakistan is its sovereign debt rating especially those by private rating agencies such as Fitch, S&P and Moodys.
If you review economic indicators after 1970 by any reliable sources available on internet performance of Nawaz Sharif governments is below in comparing to other Military/ Civil Governments.( even Both Bhuttos) Low GDP rate, lowest Foreign exchange reserves (US$ 800mn in 1998) lowest 100 KSE Index (875 points in 1998) unusual load-shedding (1991-92)& highest inflation. It is pertinent to mention that writ of State, governances, law & order situation in far batter before 2001. In present scenario one cannot expect any miracle from the regime of poor Sharif.
If I had not seen an excellent BBC documentary in which a very senior World Bank executive honestly said that although the WB, IMF and such institutions know that most of the money being loaned to them will be eaten up by corruption or mismanagement with very little reaching the people, they still go ahead and lend the money. The reason being that these institutions are REALLY in the business of making money themselves and countries like Pakistan, in reality, are an excellent investment with very little risk. She knew what she was talking about. So I would agree with you that such reports need to looked at with more caution.
@FAZ:"honbest leadership"..that is exactly problem with the pakistanis,one person will not make or break the system...pakistan has structural problems not the leadership issues as you people claim infact there is no structure to begin with.from land reforms to manufacturing sector or entire macro econmic spectum is nowhere to be seen in pakistan.your mullas have a veto power on educational reforms,your miltary has a final say on every other spectrum of macro economics so in laymen terms any civilion govt in pakistan can not to do anything more than paving roads and constructing buildings.
@FAZ: Let us assume he is a indian call center operator ..whats wrong with it lol, its not like he is a jihadi. By the way call centers are all in phillipines now, India is about software solutions. Pakistan is pretty much the same and getting worse.
@Hilarious: Exactly how? and what do you mean by that, Mr. Free Time Indian call center operator? A Pakistani analyst, analysing and crticizing what he thinks the truth is. His article being published in the news paper of the same "basket" country you refer to and which is the subject. Most Pakistani know what their problems are. We just need a true and honbest leadership to deal with it.
World Bank and IMF are driven by political ambitions of West. As of now PMLN government has backing of western powers, so no wonder World Bank is giving positive reports.
You really do not need an expert to tell you that the PMLN govt has failed miserably on all accounts.
If the World Bank is trying to give the PMLN any support, again, you really do not need an expert to tell you that the World Bank itself is a discredited organization.
PMLN should stop this bogus propaganda to get positive coverage and should announce elections soon.
The World Bank, in the mean time, should start revamping itself and stop becoming a political supporter of dwindling governments.
Pasha has shown the uninformed, that at least sometimes, World Bank should have genuine analysts producing real reports.
Probably US pressure had something to do with it. US wants Pakistan not to sink and people to invest. If the report had published absolute truth, then this would be devastating for investors.
But, investors have other source of news and they will eventually figure it out.
Pakistan has to grant MFN to India to integrate itself to the Indian Subcontinental Economy.
Pakistan by giving a free hand to China has allowed it to flood its market.
Basket case of a country...
Excellent article.