Economy likely to remain strong: Escap survey
ISLAMABAD (March 28 2008): Pakistan's economy is expected to remain strong in 2008, with 6.5 per cent growth despite political uncertainties and some other disturbances, the United Nations Economic and Social Commission for Asia and the Pacific (Escap) said on Thursday.
In its Economic and Social Survey of Asia and the Pacific 2008, which was launched at the United Nations Information Centre (UNIC) here, the Escap said the growth would be close to seven per cent as recorded in 2007 and the 6.6 per cent in 2006.
"In just a few years, sound macro-economic policies have transformed Pakistan's consumption-led growth to one in which investment-led growth can assume a more important role," said Innovative Development Strategies (IDS) Director Sarfraz Khan Qureshi, while commenting on the Escap survey.
In 2007, the agricultural sector recovered strongly, growing by five per cent from just 1.6 per cent in 2006, while the manufacturing sector's growth sustained at 8.4 per cent in 2007, marginally down from the 10 per cent recorded in 2006.
A major driver of growth was investment. Both domestic private and a record foreign direct investment (FDI), inflows doubled from 2006, touching 8.4 billion dollars last year, helped in boosting the economic performance. "In 2007, investment in real terms increased by over 20 per cent," the Escap said.
While Pakistan's inflation rate was 7.8 per cent in 2007, the main concern is higher food prices, which rose by 10.3 per cent with its effects felt most strongly by "people living on low and fixed incomes." Inflation in 2008 is expected to remain high, close to last year's level.
"The inflation was fuelled by global increases in some commodity prices, higher utility tariffs, and by local supply- and demand-driven factors," the Escap said, adding the government efforts to stem price hike included the expansion of the public sector utility stores network, even extending the programme of subsidies for essential edibles to rural areas.
The Escap said the government's expansionary fiscal policy was seeking to promote investment led growth and pro-poor spending, and added the development expenditure had been taking more share of overall expenditure in recent years. But the central government's budget deficit in 2007 had remained steady at 4.2 per cent of gross domestic product (GDP), it said.
Concerns were evident over a sharp slow down in the growth of Pakistan's exports and imports in 2007. The rates of growth for exports fell 3.4 per cent, while for imports the growth rate dropped by 6.9 per cent.
A widening trade deficit was partly covered by remittances from migrant workers, which in 2007 rose to a record amount of 5.5 billion dollars. At the same time, the current account deficit is expected to further widen in 2008.
The Escap said the current account deficit would remain an issue for both Pakistan and other South Asian countries due to higher oil prices and the impact on the garment and textile trade with the lifting of quota restrictions on Chinese exports over 2008. "To reduce the risk of depending too heavily on a single sector, export diversification should remain an important part of government strategies," the Escap said.
PUBLIC DEBT AND FISCAL DEFICITS: The Escap further said that for most South Asian nations, including Pakistan, public debt remains a serious problem with domestic public debt now accounting for a larger component of total.
"In Pakistan, public debt growth during the 1990s was unprecedented. A credible debt reduction strategy and fast economic growth cut the public debt burden from 84 per cent of GDP in 2000 to 57 per cent by 2006," the Escap said.
Pakistan successfully reduced its external debt burden through rescheduling, a debt swap for social spending, debt cancellation and the prepayment of expensive debt. As a result, the debt service ratio has declined substantially from 2000 to 2006 though some 30 per cent of government revenues were allocated for debt servicing. "An Escap Secretariat analysis shows a further 20 per cent decrease in public debt service to government revenue ratio could increase development spending by 24 per cent," it said.
AGRICULTURE'S REVITALISATION The Escap, in a wider view of the Asia Pacific region, said efforts to reduce poverty, especially in the rural areas, required the promotion of productivity in the agriculture sector. The rural poor accounted for some 70 per cent of the poor in the Asia-Pacific region.
"Agriculture appears to be neglected, even though it still provides jobs for 60 per cent of the working population and generates about a quarter of the region's gross GDP," the Escap said in its Survey.
"In South Asia, growth in agriculture dropped from 3.6 per cent in the 1980s to three per cent in 2002-2003," the Escap said, adding by raising the average agricultural productivity across the region some 218 million, a third of the region's poor, could be taken out of poverty bracket.
It also noted that "large gains in poverty are also possible through comprehensive liberalisation of global agricultural trade, which could lift a further 48 million people out of poverty net in the region."
Business Recorder [Pakistan's First Financial Daily]
