The Asian Development Bank (ADB) has projected a 4.2% economic growth rate for this year but warned that increasing security concerns, political demonstrations and effects of recent floods pose downside risks to the Pakistani economy.
The Manila-based lending agency’s growth projection is around 1% less than the target the government has set for itself. The 4.2% projection is also half than the pace the country needs to create jobs for thousands of people every year. The projections were made in the Asian Development Outlook (ADO) Updated – its flagship annual report.
The continuation of economic reforms and efforts to improve the security environment would help business confidence and revive private investment, it added.
The report stated that the government’s Vision 2025 also underlines that long-term development is not possible without political stability, security, and the rule of law. The ADB said several years of concerted national commitment would be required to eliminate electricity shortages and affect the structural reforms necessary to achieve high and inclusive growth.
The report argued that the projected 4.2% growth rate in the current fiscal year reflects some easing of fiscal consolidation and increased allocations for public sector development spending. But continuing reforms and a better security environment would further boost business confidence and foster private investment. It cautioned that the prospects of strong growth in manufacturing depend on further progress in easing energy shortages.
The updates came at a time when the government is struggling to cope with the challenges posed by protesters and the aftermath of floods. Due to increasing political pressure, the government has already started backtracking from committed reforms.
The ADB said Pakistan’s ability to achieve current fiscal year’s budget deficit target of 4.9% also hinges on reforms in the energy and taxation areas. While in most major categories of spending is projected to be increased by double digits, the report added that the government is expecting large savings from a 37% drop in subsidies, which is equal to 0.6% of Gross Domestic Product (GDP). It added the savings have been anticipated mainly by cutting untargeted power subsidies.
“Containing subsidies will be a challenge given overruns in recent years, and success will depend on implementing power sector reforms to raise tariffs enough to meet costs, improve collection, reduce leakage and invest in generation, transmission, and distribution systems”, it observed.
Contrary to its commitment to the International Monetary Fund, the government has already announced freezing increase in power tariffs due to fear of public backlash.
The ADB report stated that the significant power tariff increase in the previous fiscal year helped reduce subsidies, but savings were partly offset to cover improved supply.
The ADB has projected that average inflation is expected to slow down to 8.2% in this fiscal, slightly down from 8.6% in the previous fiscal year.
The ADB also revised its economic growth projection to 4.1% for the last fiscal year, up from its earlier estimates. It said the upturn came from improved industrial performance: a pickup in construction by 11.3%, continued growth in large-scale manufacturing at 4%, and electricity supply improved by 3.7%, owing largely to the government’s clearance of intra-industry debt.
However, it highlighted areas the government ignored in its first year. The contribution of investment was low by 0.2%. The ratio of fixed investment-to-GDP continued to decline falling to 12.4% in last fiscal year compared with 12.6% of fiscal year 2013. The private and public enterprise investment in the various production sectors slipped to 9.9% of GDP. Net exports turned negative, subtracting 0.7% from GDP as import growth outpaced export.
Published in The Express Tribune, September 26th, 2014.
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COMMENTS (10)
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PMLN is trying hard and its efforts if allowed to continue will start paying off in the next few years. Critics of PMLN please remember that PPP did nothing but corruption in the last 5 yrs. Had PPP or Musharaf invested in infrastructure such as coal power plants, dams etc they would have not only created employment but heck those projects would have been coming online by now to peoples blessing. But they didnt. Now when PMLN is trying to build up the country Imran Khan is acting a tool in the hands of foreign powers to destabilize the government and progress. I voted PTI last election but will vote PMlN soley becaise they seem to be the only party trying to build up the country. They have allocated funds for dams, hydro projects, coal plants, allocated funds to build delay dams to bring barren land under cultivation, online free education portal in punjab, allocation for strengthening education institutes across the country, trying to privatize white elephant state institutions, building motorways, metrobus etc. Is this not work or what. Lon live PMLN I have become a fan. Go Imran Go Ro Imran Ro
4.2% growth is quite impressive. I didn't expect Pakistan to grow at such a rate. Good for you, guys. Hope you achieve it and more in future years...
We are at around 5.5 - 6 which, though ok, is not yet enough. We need to touch at least 8%, but God willing, we'll get there in 2-3 years...
The growth rate mentioned in the article r not very high. There is huge potential in the economy of Pakistan to achieve even better rates. We have wasted our last 5 years due to mismanagement of the government. If ambitious political parties let the current government do its job a better growth rate would be seen. Khan shahib please wait n let nawaz team work on their promises they did with the nation
@LOL i think you didn't read the article completely
4.2% growth rate?! Any economist will tell you that it'd be impossible to achieve this with how the things are at the moment. We're already almost half way through current fiscal year! Stock exchange is no barometer of economic growth which this govt talks about, it is nothing but a legalized gambling! Economic growth will stay stagnant; no gas, no electricity, floods, corruption, high inflation, political instability, hardly any new investment - all of it are going to keep our growth rate around 3.5%. This govt has high non development expenditures; loans, IPP pay offs at high unit cost of electricity but we're getting lesser output, state owned organizations in debt.....it just doesn't make any sense that we will have growth rate of 4.2% in such a state of affairs, already this govt lied that we achieved 4.1% while they told IMF it was 3.1%..... Do not trust PMLN at all
4.2% is a good start but the fundamentals are the same.falling forex reserves and import oriented growth and more of a consumption based economy when we need a balance for more investment in infrastructure. 14% whether its imran khan or anyone they cant get in 90 days nor a year because they might be honest in administration but our growth is hindered by gas and power shortage or an energy crisis.As long as it prevails our exports cant increase and this same energy crisis has led to circular debt which takes a huge toll on development budget which is sacrificed to pay for the circular debt when it can be channeled to public sector development At the same time our 4.2% growth doesnt bear the fact that the income divide or the gap between rich and poor is increasing
Without the dharna and floods 4.5 - 5.1% would've been achievable.
How they do this projection of growth ....... without electricity and Gas for Production sector and water for agriculture it is mere joke
Political instability? It is all lies. 4.2% growth rate is farce. Our great Imran Khan can achieve 14% growth rate in 90 days.
Half of this growth will go in the packets of Sharif`s