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| November 14, 2005 | Monday | Shawwal 11, 1426 |
Growth rate forecast lowered to 6.2pc
ISLAMABAD, Nov 13: Multilateral donor agencies have lowered Pakistan’s growth forecast to 6.2 per cent (instead of budgeted seven per cent) on the basis of an estimated substantial adverse impact of the devastating Oct 8 earthquake on its overall economy.
They have also estimated a long-term impact on development goals, widening of the fiscal deficit by about 0.6 per cent of the GDP and significant impact on public sector development activities, besides aggravation of the balance of payment pressures in case of a delay in aid inflows.
A study prepared jointly by the World Bank and the Asian Development Bank has estimated that the impact of the earthquake on Pakistan’s official GDP, excluding AJK, is expected to be in the order of 0.4 per cent. “When AJK’s estimated GDP is added to Pakistan’s overall output and to GDP losses, the impact of the earthquake rises to 0.7 per cent,” says the detailed report on damage and needs assessment.
Pakistan’s official GDP growth for fiscal year 2005-06 was projected by the government at seven per cent in June. However, recent crop data on cotton and sugarcane suggest that growth will be around 6.5 per cent. “The additional impact of the earthquake is likely to bring output growth further down to around 6.2 per cent due to a projected reduction in the NWFP out for fiscal 2005- 06,” it said.
At the macroeconomic level, the most significant impact of the earthquake is expected to be on the fiscal deficit of the government. In the absence of any offsetting revenue increases and expenditure reductions, the earthquake is projected to increase the deficit by 0.6 per cent of the GDP.
The government has committed to a sustainable fiscal stance and to continued debt reduction, it is expected that it will announce measures to mitigate, at least partially, the negative fiscal impacts of this shock.
“NWFP’s and AJK’s budgets will be unable to accommodate a significant share of the relief and reconstruction expenditure, although it is to be expected that they would have significant role in the reconstruction process,” the donors’ report said.
On the external sector, the donors said the earthquake may cause an increase albeit limited in imports of fuel, food and construction materials. “A delay in aid inflows to finance GOP earthquake expenditures would aggravate pressures on the balance of payments.”
The earthquake has now created additional expenditure needs for relief, reconstruction and rehabilitation cost. “These pressures could pose difficulties for Pakistan’s macroeconomic balances and may undermine the achievements of its long-term development goals, unless additional concessional financing is made available by the international community.”
It said the government has indicated to absorb a part of budgetary impact of the earthquake by making cuts in low priority expenditures and raising additional revenue but “it is unlikely to be able to fully absorb the fiscal impact without significantly affecting public sector development activities”, given the magnitude of required resources.
At the same time, the donors have insisted that priority public expenditures should be protected so that Pakistan could continue to improve service delivery of health, education and public infrastructure.
Along with this, the donors have called for a complete transparency, zero tolerance to corruption, third party audits and functioning judiciary during the reconstruction phase. Accountability and enforcement of standards and norms requires functioning administrative dispute resolution systems and full extension of supreme audit institutions, backed by functioning judiciary and legal institutions.
It said campaigns are needed to ensure citizens have access to information about all recovery operations. A common donor, government, and civil society committee to zero tolerance for corruption must be backed by full extension of the Auditor General of Pakistan’s jurisdiction to all agencies involved in recovery operations, third party verification of contracts and use of existing arrangements for community-based social audits.
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