ADB sees growth at 4.8pc in FY19 amid looming challenges

ISLAMABAD: Asian Development Bank (ADB) on Wednesday projected growth at 4.8 percent for the current fiscal 2018/19, almost one percentage point down from the last year, as it sees tight monetary and fiscal policies to impede momentum.

“If the government is successful in obtaining finance, Pakistan will have reasonable growth prospects for FY2019 on the strength of an improved security and energy supply, continued investment in the CPEC (China-Pakistan Economic Corridor) and other initiatives, and recognition of the need to rein in deficits,” Manila-based lender said in the Asian Development Outlook (ADO) 2018 update.

“Challenges to maintaining the growth momentum are tighter monetary and fiscal policies to contain domestic demand, currency depreciation, and tension in the global trade environment.” ADB said the new government should address the large budget and current account deficits, rising debt obligations and falling foreign exchange reserves.

“This requires mobilising substantial external financing to buy time for orderly reform to reduce the large external and domestic imbalances,” it added. “Such resources can be acquired from bilateral and multilateral sources, the diaspora, or international capital markets.”

ADB said the key challenges are to adopt the right reforms and achieve good outcomes to sustain public support. “With the new government considering policy options to implement its economic and social agenda, twin deficits widened by a rising import bill and higher spending continue to pose a challenge.”

ADB Country Director for Pakistan Xiaohong Yang said the smooth political transition and the new government’s strong commitment to focus on pockets of vulnerabilities and implement pro-job and socioeconomic development policies will stimulate robust, sustainable growth in the years ahead. “ADB will work closely with the government and the private sector to improve Pakistan’s basic public services, infrastructure, food and energy security, and attract investment and trade to create jobs and improve the quality of life of the country’s citizens,” a statement quoted Yang as saying.

ADB, in its ADO 2018 update, said the economy accelerated to 5.6 percent, the highest in 13 years, in the last fiscal year owing to an uptick in industry, better agricultural crops, and an expanding services sector. Inflation remained moderate. The bank, however, said water shortages in some areas are likely to keep agricultural production below target in FY2019. Growth in manufacturing and services will likely be affected by fiscal and monetary tightening.

“On top of dealing with macroeconomic imbalances, the new government faces long-delayed decisions on raising tariffs to contain rapidly rising and potentially disruptive intercompany arrears in the energy sector – so called circular debt – that exceeds Rs1.4 trillion, or 5 percent of GDP,” it added.

ADB projected average annual inflation at 6.5 percent for the current fiscal year “because of currency depreciation and elevated international oil prices”.

Yang said the new government needs to move swiftly to put in place its macroeconomic policies including fiscal, monetary, tax, and trade reform policies to promote financial stability and growth. “Pakistan needs to institute mechanisms to increase competitiveness, attract private sector investments, and strengthen the ease of doing business as well as Pakistan’s position in the global value chain,” she said.

ADB said private consumption, however, slowed slightly from a year earlier to 6.3 percent but, with an 81.1 percent share of GDP, remained the largest contributor to growth. The bank said public sector fixed investment grew 17.1 percent on top of 27.5 percent expansion in FY2017, reflecting higher spending on energy and infrastructure in connection with the CPEC.

“This growth was, however, from a low base as public investment still provides only 5.4 percent of GDP,” it said. “Growth in private investment fell markedly to only 1.1 percent in FY2018 despite improved security and energy supply. The drop reflected a cautious business environment in light of the deteriorating balance of payments position and in anticipation of the national elections in July 2018.”

Related Articles

open market: Turkish lira hammered again as crisis spills into Asian markets

HONG KONG: Asian markets tumbled and the Turkish lira dived almost eight percent Monday on fears that the economic crisis

Dr Shakil Afridi case: PHC directs Interior Ministry to submit reply

PESHAWAR: The Peshawar High Court (PHC) on Wednesday directed the Ministry of Interior secretary to submit a reply in a

Modric breaks through prize ceiling by landing FIFA World Best Player prize

Citizens Voice Tv (Sports): Luka Modric of Real Madrid (L) and Marta of Orland Pride pose for a photo during