ISLAMABAD: Pakistan’s gross domestic product (GDP) growth is expected to accelerate to 5.6 per cent on strong prospects for large-scale manufacturing and crop harvests for a second year in a row.

However, this GDP growth is expected to adjust downward in 2018-19 to 5.1pc as balance of payment constraints seem to outweigh improvements to supply-side factors such as better security and energy supply, cautions the ADB’s ‘Asian Development Outlook 2018’ released on Wednesday.

According to the outlook, the continued buoyant domestic demand including from the China-Pakistan Economic Corridor (CPEC) and other infrastructure investments, strengthened economic growth globally that will revive exports, much improved power supply, and commodity prices which are still broadly favourble despite a further double-digit increase in the oil prices.

“Pakistan’s economic prospects in the coming years remain positive if budget and current account deficits are reduced and exports are rejuvenated by improving the country’s competitiveness,” ADB Country Director for Pakistan, Xiaohong Yang said.

“Pakistan can maintain a stronger growth trajectory through domestic and regional stability, improving overall competitiveness, revitalising public sector enterprises, as well as timely completion and effective use of infrastructure projects,” she said.

ADB suggests that the government should consider reforms in greater exchange rate flexibility, enforcing industrial compliance with quality control and other standards, operationalising a national single window for trade, skills development that aligns with industry demand, and instituting legal and institutional frameworks to support new industries such as information and communication technology services.

The report warns that while the budget deficit may moderate slightly in fiscal year 2018 from a year earlier, spillover from higher investment expenditure is expected to widen the current account deficit. Securing adequate financing to contain the drawdown in foreign exchange reserves is a concern, it says.

Growth in 2017-18 is being led by large-scale manufacturing, which expanded by 6.3pc in the first seven months of FY18 from 3.6pc in the same period last year. This improvement was largely from solid expansion in cement, iron, and steel products that reflects higher demand from construction on public infrastructure projects.

Higher domestic demand was indicated by sharp expansion in consumer goods such as automobiles and electronics. Recovery in engineering, petrol products, and rubber also contributed to growth, which is expected to continue in light of a favourable demand outlook.

Provisional estimates for major winter crops suggest strong agriculture in 2018 for a second year in a row, supported by increased cultivated area, fertiliser use and credit.

However, the wheat crop is expected to be slightly below target with reduced sown area, the report says.

Food inflation was 2.2pc in the first eight months of current fiscal year, well below that in the year-earlier period, as abundant agricultural supplies held headline inflation to 3.8pc even as non-food inflation rose to 5.0pc.

Published in Dawn, April 12th, 2018