Successes, but many challenges ahead: Economic outlook 2006 issued
By Ihtashamul Haque
ISLAMABAD, Sept 9: The ministry of finance has issued an economic outlook for 2006 on Saturday which says despite achieving ‘extraordinary successes’ in the face of exogenous shocks, Pakistan still faces many challenges like job creation, poverty reduction, social indicators improvement and physical infrastructure strengthening to sustain ongoing growth momentum in an environment of macroeconomic stability.
The document extensively quotes the World Bank, IMF and Asian Development Bank which have praised the Pakistani economy by saying that out of 175 economies, Pakistan ranked 74 while India stood at 134th position.
“Within South Asia, Maldives ranked at 53 followed by Pakistan at 74, Bangladesh at 88, Sri Lanka at 89, Nepal at 100 and India at 134. Bhutan and Afghanistan have ranked respectively at 138 and 162, the lowest in the region”, it added.
The rankings track indicators of the time and cost to meet government requirement in business start up, operation, trade, taxation and closure.
“The government believes that the momentum does not mean that we have time to pause or rest. While the country has made great strides over the last six years, it is fully aware that much remains to be done”.
The first week of Sept 2006 has been highly encouraging for Pakistan’s economy as three international financial institutions released their reports on Pakistan.
The International Monetary Fund concluded its discussion with Islamabad on recent economic developments, prospects and policies under the Annual Article IV Consultation. Then, the IMF office in Pakistan issued a press statement.
The ADB released an update on Asian Development Outlook 2006, which also reviewed the performance of Pakistan’s economy and its future prospects.
Finally, the World Bank and the International Finance Corporation (IFC) released a report, “Doing Business 2007.” The report reviewed business environment around the world, including South Asia.
The three reports have many good things to say on Pakistan’s economy and its future prospects.
According to the IMF, the outlook said, Pakistan’s economy had withstood well in 2005-06 the impact of several exogenous shocks, including the earthquake of 2005, a significant rise in international prices of oil and less favourable weather conditions which impacted on agricultural output. At 6.6 percent, economic growth in 2005-06 remained impressive, with inflation coming down to 7.6 per cent at the end of June 2006 compared to about 9 per cent a year earlier.
In the IMF’s view, the prospects for sustained high economic growth in 2006-07 and over the medium term remain excellent with an evidence of a strong pick up in domestic and foreign direct investment, as Pakistan has increasingly been viewed as a promising destination for investment.
The ADB report argues that Pakistan’s economy advanced strongly in 2005-06 despite the devastating impact of the earthquake and continued surge in international prices of oil. In their opinion, this has marked a continuation of the fast growth stemming from the government’s far reaching macroeconomic and structural reforms initiated over the last several years which subsequently have propelled the economy to annual expansion of about 7 per cent over the last four years.
A new dynamism has taken hold in economic activity and social indicators have improved, which augur well for continued rapid development.
The ADB report estimates that the economy is likely to grow by 7 per cent in 2006-07, an estimate consistent with the government’s target for the year.
The ADB also sees greater progress in reducing inflation. Both the IMF and the World Bank, the outlook said, had talked about widening of current account deficit on the back of a strong domestic investment-driven import with rising energy bill. The domestic demand growth has outpaced domestic supply growth in 2005-06 albeit some improvement over the last year.
Both the institutions view that larger inflows on the financing side of the balance of payment, including foreign direct investment, had ensured a full financing of the current account deficit in 2005-06 and added to international reserves.
The prospects for a similar outcome in 2006-07 and beyond look good according to the institutions.
Both the financial institutions have recommended tighter monetary policy stance to reduce aggregate demand, a policy under implementation by the State Bank of Pakistan.
According to the joint report of the World Bank and the IFC, doing business has become easier in India and Pakistan in 2005-06. No other South Asian economy improved its business regulation in 2005-06. Although India was the top reformer in South Asia in 2005-06, it ranked far below Pakistan in global ranking for doing business.
