ISLAMABAD: The United Nations latest report on the economic outlook for Asia and the Pacific has feared that Pakistan’s economy will still be constrained by macroeconomic imbalances despite expected economic growth in the coming years.

The ‘Economic and Social Survey of the Asia and the Pacific 2015’ launched on Thursday, pointed out that persistently high fiscal deficit, financed by borrowings from the banking system including the central bank, has crowded out private investment and added to inflationary pressure.

Similarly, supply side constraints — such as poor domestic security conditions, unfriendly investment climate and severe power shortages — remain in place.

Sustained economic growth is needed to help generate more jobs and cut poverty, which remained at 13.6 per cent in 2011, the report said.

Despite some progress, a narrow tax base, widespread tax evasion and required restructuring of loss-making state-owned enterprises will continue to limit revenue collection.

At the same time, improving fiscal conditions through expenditure cuts may be difficult due to the rigid structure of government spending, the report said, citing example that debt servicing and military spending account for more than half of total budgeted expenditure.

Nevertheless, the ESCAP survey noted that the country’s economy expanded by 4.1pc, a slight pick-up from the average growth rate of 3.7pc in the preceding three years. Growth is expected to rise to 5.1pc in 2015, it said.

Declining inflation, relatively better growth in private sector credit and robust workers’ remittances helped propel consumer spending.

Speaking at the launching ceremony, Economist Dr Ashfaq Hasan Khan said that Pakistan was facing double challenge — the first reviving the growth and second making the growth inclusive.

Pakistan has been implementing an IMF-supported programme since 2008 with focus on ‘stabilising’ first and ‘growth’ later.

“Such a prolonged period of stabilisation has suffocated the economy,” he said regretting that “too much fixation on reducing budget deficit austerity appears to have weakened domestic demand which has now weakened supply side, slowing down in production.”

Dr Ashfaq suggested that Pakistan needs to get out from ‘survival’ to ‘recovery’ mode, and macroeconomic policies should not focus narrowly on reducing budget deficit.

Policies should be supportive of growth and employment generation. At the same time, the developmental role of monetary and fiscal policy will need to be strengthened, he said.

He further suggested that the government should not use monetary policy just as a mean for controlling inflation. Instead, the use of this powerful instrument should be to influence both price and volume of credit to achieve its developmental objectives, he added.

The survey also pointed out that the growth potential of Asia-Pacific developing economies was being held back by infrastructure shortages and the excessive commodity dependence of some countries.

The fragile global economic recovery and consequently subdued global trade, pose additional challenges, it warned.

Published in Dawn, May 15th, 2015

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