World Bank sees Pakistan’s economy improving with stable growth

[farhan_9909]

WASHINGTON: Pakistan's economy is improving and the GDP growth is expected to remain stable in the medium term, according to the latest World Bank report on Global Economic Prospects.

Pakistan, the second largest South Asian economy, is improving and has grown broadly stable from previous fiscal year, but significant in the context of fiscal adjustment required to overcome the threat of a balance of payment crisis, notes the report.

It predicts growth in the vicinity of four percent of GDP in the medium term. Islamabad has also reduced its fiscal deficit, the report acknowledges. In Pakistan, after declining for several years, the country's investment rate is projected to rise during 2014-16.

In South Asian regional GDP measured at market prices grew an estimated 4.7 percent in 2013, down from 5.0 percent in 2012. Growth in both years was more than two percentage points lower than the average growth of the preceding decade.

South Asia's sub-par growth performance in recent years can be mainly attributed to subdued growth in India, the largest regional economy, where growth fell-off sharply after a stimulus-induced cyclical rebound following the 2008-09 global financial crisis.

Since 2012, investment growth has slowed sharply in India amidst high inflation and weakened business confidence. Pakistan's growth is impacted by energy supply bottlenecks.

Through the first four months of 2014, gross private capital flows to South Asia have been robust, despite the start of U.S tapering and emerging market financial tensions in January.

Pakistan issued $2 billion of international bonds in April, while Sri Lanka raised $1 billion and $500 million respectively in January and April. Stock markets in the region have risen strongly since Q4 2013 despite some short-lived reversals in early 2014.

This better performance of capital flows and equity markets may be due to reduced external vulnerability (after current account adjustment in India), expectations of improved growth performance in future and continued accommodative policies in high income countries and a search for yield.

In its report, the Bank has lowered its forecasts for developing countries, now eyeing growth at 4.8 percent this year, down from its January estimate of 5.3 percent.

Signs point to strengthening in 2015 and 2016 to 5.4 and 5.5 percent, respectively. China is expected to grow by 7.6 percent this year, but this will depend on the success of rebalancing efforts. If a hard landing occurs, the reverberations across Asia would be widely felt, the Bank said. Bad weather in the US, the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints are all contributing to a third straight year of sub 5 percent growth for the developing countries as a whole.

"Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40 percent," said World Bank Group President Jim Yong Kim.

"Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation."



Copyright APP (Associated Press of Pakistan), 2014

World Bank sees Pakistan's economy improving with stable growth

 

[Devil Soul]

Investment in Pakistan to improve
By The Newspaper's Reporter

ISLAMABAD: The World Bank has projected that the investment growth rate in Pakistan, which declined for several years in the past, is projected to rise during 2014-16.

According to the ‘Global Economic Prospects’ released on Wednesday, the projected gradual revival of investment growth will depend to a large extent on credible efforts to reduce infrastructure and energy bottlenecks, create a predictable regulatory environment, implement labour market reforms, and continue fiscal consolidation.

In Pakistan, preferential market access by the European Union (GSP+) could help export performance, but energy supply shortages may hamper exports.

Among other South Asian countries, growth in Pakistan, the second largest economy, remains below the regional average, but improving with GDP in 2013-14, estimated to have grown 3.7 per cent, broadly stable from previous fiscal year, but significant in the context of fiscal adjustment required to overcome the threat of a balance of payment crisis.

The GDP growth during 2013-14 accelerated to 4.14pc against the growth of 3.7pc recorded during the same period last year. According to the World Bank report, GDP growth in South Asia is expected to pick up modestly in 2014, and then rise to about 6pc in 2015 and 2016, with firming global demand and easing domestic constraints offsetting a tightening of international financial conditions.

Pakistan’s weaker growth relative to its peers mainly reflects significantly lower investment rates in part due to energy supply bottlenecks and security uncertainties, the World Bank report says.

The report says that despite some consolidation, notably in Pakistan and India, fiscal deficits in the region remain high, in part reflecting weak revenue mobilisation. Private capital flows to the region have grown steadily since the mid-2013 turmoil, while remittances despite easing provided support to consumption and external balances.

Stating that medium term growth will have to come from structural reforms that boost growth potential, the economic prospects report says developing countries have shown their ability to prosper even as high-income country growth and imports weakened, but to continue to do so they will need to reinvigorate domestic reforms that have taken a back seat to fire-fighting and demand management in the post-crisis period.

The report says that a projected decline in international crude oil prices in 2014-16 could provide governments in South Asia with an opportunity to gradually reduce subsidies without big hits to household pocket books. Measures to simplify the tax system, broaden the tax base, and improve compliance can help to raise tax revenues as a share of GDP and help in fiscal consolidation, it says.

The report says that El Nino is a key near-term risk for regional growth prospects.

Weak monsoon rains can have significant impacts on agricultural production, consumption and GDP growth.

Published in Dawn, June 12th, 2014