ISLAMABAD: The World Bank has forecast Pakistan’s economic growth in next fiscal year to slow down owing to higher than expected oil prices.
Growth in the Pakistani economy is expected to slow to 5pc in 2018-19 from expected growth of 5.8pc in the outgoing fiscal year, reflecting tighter policies to improve macroeconomic stability, says the World Bank’s Global Economic Prospects Report for 2018.
Pakistan’s GDP growth rose in 2017-18, supported by infrastructure projects funded by the China-Pakistan Economic Corridor (CPEC), improvements in energy supply, and persistent private consumption growth.
The forecast for the next two years shows that growth in economy will remain at 5.4pc in 2019-20 and 2020-21.
Growth in South Asia is projected to strengthen to 6.9pc in 2018 and to 7.1pc in 2019, mainly as factors holding back growth in India fade. Growth in India is projected to advance 7.3pc in 2018-19 and 7.5pc in 2019-20, reflecting robust private consumption and strengthening investment.
Bangladesh is expected to accelerate to 6.7pc in 2018-19.
The risks to South Asia outlook are titled to the downside, although upside surprises to global growth remain a possibility in the short-term. These include domestic policy slippages, renewed security challenges, and natural disasters.
The outlook could also be adversely affected by external shocks such as an abrupt tightening of global financial conditions and escalating trade protectionism, even though the region is relatively less open to trade.
Since South Asia is net oil importer, a higher-than-expected rise in oil prices might amplify macroeconomic vulnerabilities and weigh on economic activity. In a number of countries, a further deterioration in fiscal balances (India, Maldives, Pakistan, Sri Lanka), a continued buildup of debt, and widening current account deficits (Pakistan), present significant vulnerabilities to a tightening of domestic or external financing conditions.
Furthermore, a setback in the implementation of reforms to resolve weakening corporate and financial sector balance sheets could hold back the investment recovery currently underway and dampen credit growth in the region. An increase in political uncertainty (Afghanistan, Bangladesh, Pakistan, Sri Lanka), and further deterioration in the security environment in some countries (Afghanistan) might dampen confidence and set back growth.
In recent years, the number of people and geographical areas affected by natural disasters such as drought, floods, and earthquakes has risen in the region.
A rise in the prevalence of natural disasters, including those caused by climate change, could disrupt infrastructure, agricultural output, and economic activity in general (Bhutan, Nepal, Sri Lanka).
According to a statement issued by World Bank office in Islamabad, despite recent softening, global economic growth will remain robust at 3.1pc in 2018 before slowing gradually over the next two years, as advanced-economy growth decelerates and the recovery in major commodity-exporting emerging market and developing economies levels off.
“If it can be sustained, the robust economic growth that we have seen this year could help lift millions out of poverty, particularly in the fast-growing economies of South Asia,” World Bank Group President Jim Yong Kim said.
“But growth alone won’t be enough to address pockets of extreme poverty in other parts of the world. Policymakers need to focus on ways to support growth over the longer run—by boosting productivity and labor force participation—in order to accelerate progress toward ending poverty and boosting shared prosperity.”
Activity in advanced economies is expected to grow 2.2pc in 2018 before easing to a 2pc rate of expansion next year, as central banks gradually remove monetary stimulus, the June 2018 Global Economic Prospects says. Growth in emerging market and developing economies overall is projected to strengthen to 4.5pc in 2018, before reaching 4.7pc in 2019 as the recovery in commodity exporters matures and commodity prices level off following this year’s increase.
This outlook is subject to considerable downside risks. The possibility of disorderly financial market volatility has increased, and the vulnerability of some emerging market and developing economies to such disruption has risen. Trade protectionist sentiment has also mounted, while policy uncertainty and geopolitical risks remain elevated.
Published in Dawn, June 7th, 2018