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Risks to growth

April 19, 2017


THE World Bank has served up another reminder that Pakistan’s economy is on a growth path, reserves are high, inflation is “on target”, and all other indicators are improving, but risks from the fiscal and external side remain a source of concern. This constant refrain, of a steadily growing economy with strong caveats hanging over it, is now becoming ubiquitous. Almost every entity other than the government itself, is qualifying its assessment of the growing economy with the observation that the risks are growing alongside as well. The World Bank has presented its assessment in a report titled South Asia Economic Focus, which takes a close look at the impact that a growing protectionist backlash in the advanced industrial democracies could have on South Asian economies, which have registered the highest growth rates in the world in recent years.

Pakistan tracks the rest of the region in its developments, but the risks it faces are unique to it. The report notes South Asia may even stand to benefit from the backlash, due to fortuitous circumstances, but in the case of Pakistan, the approach of elections could cause the leadership to take its eye off the ball, resulting in the growth process losing momentum and any reforms fizzling out. Aside from this, the additional risks pointed out by the World Bank emanate from the same areas identified by others: rising trade deficit and falling remittances. “Therefore, the current account is experiencing some pressure”, state the authors, going one step beyond the State Bank which pointed to the external account as a source of worry in its last report, but stopped short of saying it was coming under pressure. Likewise, the fiscal framework is also taking some pressure, with the deficit widening by 0.7 percentage points in the first half of the fiscal year compared to the same period last year. With headwinds expected from the global economy depending on how Brexit works out, and how US economic policy shapes up under the new administration, the World Bank says the risks facing the economy are significant. It is worth noting that by now almost all institutional assessments of the economy, and its seemingly comfortable position, are in agreement on this point. With high reserves and growth ramping up, perhaps the greatest risk facing the economy is complacency at the top. With the approach of elections, the risks are solidified further.

Published in Dawn, April 19th, 2017