ISLAMABAD: Pakistan economy is trapped in a low-growth equilibrium, lower than other South Asian countries, because of macroeconomic instability, low investment and savings, a business-unfriendly environment, and low productivity, said a World Bank report released on Wednesday.

In its country programme snapshot, the Bank notes that the growth has been led by consumption rather than investment.

In terms of aggregate demand, consumption – mainly private consumption – contributed around 68 per cent to economic growth during the fiscal year 2012-13.

Some of the contributing factors are low credit to the private sector, an unfavourable investment climate, a deteriorating law and order, and regulatory bottlenecks. In the medium-term, this consumption-led growth, along with declining investment levels, is a worrisome trend, the report points out.

Describing the revenue collection as poor, the report says that combined effect of large shortfalls in revenue and now customary overruns in expenditure also contributed to the large increase in the fiscal deficit.

At the same time, there is a fall in public debt-to-GDP ratio, which stood at 62.9 per cent of the GDP at end-June 2013, about 0.8 percentage points lower than at the end-June 2012. This small improvement happened because growth in normal GDP outweighed the growth in public debt stock, given the virtual absence of foreign debt creating inflows during the year. Moreover, the shortfall in external debt receipts was more than offset by abundant domestic debt creation to finance the escalating fiscal deficit.

The snapshot of the programme says that though fiscal consolidation has been planned by the government for fiscal year 2014 and beyond, the biggest challenge remains implementation.

For 2013-14, the government plans to lower its deficit target to around 6.3 per cent of the GDP, with a policy to further reduce it each year down to 4 per cent of the GDP by 2015-16.

About inflation, the report says that through inflationary pressures have temporarily eased, an expected upward adjustment in domestic energy prices and exchange rate depreciation may push inflation higher.

The overall balance of payments is under severe stress as the sudden halt in financial inflows aggravated by high debt repayments, especially to the IMF.

Capital and financial accounts experienced a net inflow of $279 million over July-June 2012-13. Up to June 30, 2012-13, the country had repaid about $2.54 billion of IMF debt.

Referring to trade, the report says that the country’s recent trade performance has been lagging, with a low and falling trade-to-GDP ratio over the past decade.

The report underlined the strong need to strengthen the poverty statistics. Although significant concerns exist about the quality of poverty data, the overall trend points to declining poverty levels.