April 28, 2007	Saturday	Rabi-us-Sani 10, 1428

ISLAMABAD, April 27: The Asian Development Bank (ADB) on Friday estimated Pakistan's growth rate at 6.8 per cent instead of targeted seven per cent and said a host of internal and external issues were potential risks to future economic prospects.

"The slowing exports, growing current account deficit, continuing high inflation, and emerging power shortage are potential risks to the country's medium-term economic prospects", said the ADB's resident mission in Islamabad in its Economic Update. Based on performance of eight months of the current year, the bank also said the end of the China specific safeguards imposed by the US and EU against textile and clothing imports in 2008 may further weaken Pakistan's trade balance.

"The current expansionary fiscal policy, if continued, may weaken the budgetary position."

Moreover, a further possible increase in the oil price in case of escalated tensions on Iran's nuclear issue, or on account of other adverse development in the region could hurt Pakistan’s economic prospects.

"In the longer run, the overall continuing low level of savings and investment could depress economic growth."

The outlook for the current year said the main commodity producing sectors were expected to pick up and the services sector is likely to maintain its robust growth of 6.8 per cent in 2006-07.

Due to a sharp increase in import of agricultural machinery last year, as well as the package of incentives for the crop and livestock sub-sectors announced in the 2006-07 budget, the agriculture sector growth was projected to increase 4.0 per cent in 2006-07.

The manufacturing sector is expected to expand by 8.6 per cent, supported by a substantial increase in import of capital goods in the past several years and particularly heavy investments last year in capacity expansion in cement and fertiliser industries.

The expected further easing of oil prices in the second half of the year will also help.

In the services sector, substantial foreign investment in telecoms in recent years, along with the privatisation of the Pakistan Telecommunication Company, will help the sector maintain robust growth in 2006-07.

Strengthened by reforms and privatisation and ongoing mergers and acquisitions, the financial sector will also maintain robust growth.

However, growth of the wholesale and retail trade will be lower due to deceleration of exports and imports. The services sector, as a whole, is projected to grow by more than seven per cent in 2006-07.

Inflation is expected to decline further in 2006-07 due to the lagged effect of significantly lower monetary growth than the growth of nominal GDP in 2005-06, further tightening of monetary policy in 2006-07, and easing of oil prices.

Inflation in 2006-07 is expected to decline to 7.0 per cent, but will remain higher than the targeted 6.8 per cent.

With the projected high GDP growth, extension of the tax net to real estate transactions and increase in tax rates on some financial services, tax receipts are expected to increase at a robust double-digit rate in 2006-07.

Current expenditure is expected to exceed the budget target because of a likely over-run in defence expenditure and higher domestic debt-servicing due to higher interest rates.

On balance, the fiscal deficit is likely to increase to 4.5 per cent of GDP in 2006-07, the ADB said.

It said that import growth was likely to decelerate in 2006-07, because of expected easing of oil prices in the second half of the year and lower demand for import of consumer durables because of higher interest rates. However, the projected high economic growth and substantial increase forecast in investment will still sustain at 10.0 per cent.