Report card: Pakistan may miss growth target for fifth year in a row

World Bank also sees slow pace of economy in the next two years.

ISLAMABAD:

Pakistan will miss growth target set for the current financial year, the fifth consecutive year, and the sluggish pace of economy will continue for at least two more years, according to a World Bank report, indicating a rise in unemployment.

The Global Economic Prospects Report 2013, released on Wednesday, says Pakistan’s economy is expected to grow at a rate of 3.8%, half percentage point below the target of 4.3% set for fiscal year 2012-13 ending June 30.

The report comes at a time when Pakistan is readjusting its macroeconomic framework during ongoing talks with the International Monetary Fund to pave the way for a fresh bailout programme. Both sides have already wrapped up technical-level talks and are gearing up for policy dialogue.

The World Bank says growth in Pakistan, the second largest economy in South Asia, remained broadly stable if compared with last year’s growth of 3.7%. However, the country is clubbed with Nepal that is projected to grow 3.8%. Even Sri Lanka at 6.1% and Bangladesh at 5.8% are projected to hit growth rates far higher than that in Pakistan.

Various studies, both independent and official, suggest that Pakistan requires 7 to 8% annual growth to create jobs for the bulk of youth. In the last five years, the country has posted sluggish growth, leaving hundreds of thousands jobless every year.

The World Bank also projects sluggish growth for the next two years. According to the report, there will be lacklustre growth in financial years 2013-14 and 2014-15 at 4% and 4.2% respectively.

The bank says though industrial activity has started picking up, inadequate supply of electricity and gas for firms with captive power plants continues to hobble the industrial sector.

It fears that the pick-up in exports in the first five months of this fiscal year on the back of increase in exports of garments and processed cotton products may not continue in the remaining part of the year. Electricity shortages during the second half of December have already adversely affected textile production and may dampen export growth in subsequent months, it says.

On the fiscal front, the bank again paints a dismal picture. Against the government’s target of 4.7%, the budget deficit is expected to be over 6%, a projection which is in line with the IMF forecast.

For the last five years, economic managers have been understating expenditures and overstating revenues to show the budget deficit below actual levels, experts say.

According to a finance ministry official, the government has now presented a revised budget deficit figure of 5.6% to the IMF, largely because of a shortfall in revenues. Compared to the annual revenue target of Rs2.381 trillion, the government now expects to collect Rs2.231 trillion, a shortfall of Rs150 billion or roughly 0.7% of gross domestic product.

The official believes that the government is still betting on Rs75 billion on account of auction of 3G telecom spectrum – a transaction that is unlikely to take place in the current politico-economic conditions of the country.

The World Bank also warns that currencies of several net oil importing countries with low or eroded reserve buffers, such as Egypt, Pakistan and India remain vulnerable.

As foreign currency reserves held by the State Bank of Pakistan are coming down gradually, the rupee is under pressure against the US dollar. The rupee is touching 100 a dollar following increasing tensions on the political front.

Dr Ashfaque Hasan Khan, Dean of Business School of National University of Science and Technology, said if ongoing round of Pakistan-IMF talks did not yield desired results, the rupee will touch new historical lows with an outflow of capital.

Published in The Express Tribune, January 17^th, 2013.

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