ISLAMABAD: The Asian Development Bank (ADB) on Wednesday forecast Pakistan’s economic growth rate at four per cent for the current fiscal year (FY22) — slightly higher than 3.9pc this year — provided private investments and business activities pick up with steady Covid-19 vaccine rollout.

This is close to the 4.2pc growth forecast by Fitch Solutions a few days ago, but significantly lower than the FY22 budget target of 4.8pc. The State Bank of Pakistan anticipates GDP growth to stay the course towards the upper end of the forecast range of 4.5pc.

In its flagship publication — Asian Development Outlook (ADO) 2021 Update — the Manila-based lending agency also warned that significant uncertainty clouds the economic outlook over the course of the pandemic in Pakistan and worldwide.

The forecast also assumed the resumption of structural reform later in the year in an ongoing programme under the International Monetary Fund (IMF) Extended Fund Facility. “The economic outlook is clouded, however, by high uncertainty because it is closely tied to the course of the pandemic in Pakistan and globally”.

On the supply side, the outlook for agriculture is encouraging in view of the government’s ambitious Agriculture Transformation Plan. The plan aims to achieve food security for a growing population by expanding land under cultivation, revamping extension services, boosting water-use efficiency, developing postharvest storage and food processing plants. It also aims to augment bank credit and introducing the Kissan Card as a digital wallet for the direct and swift transfer of subsidies for seed, pesticides, and fertiliser.

Growth in industry is forecast to improve in FY22, driven by fiscal incentives announced in the budget, a substantial rise in budgeted development spending, and strong private consumption underpinned by adequate agricultural harvests, strong remittance inflow and a pickup in earnings as social restrictions are reduced and most economic activity resumes.

Also expected to buttress industry are the steady normalisation of global merchandise trade, improved market sentiment and stronger business and consumer confidence expected from the continuing rollout of Covid-19 vaccines and an accommodative monetary policy.

Enhanced growth in agriculture and industry and an expected improvement in domestic demand are projected to boost growth in services, strengthening their contribution to growth in FY22, said the ADB while keeping its April 2021 forecast about 4pc growth unchanged.

The ADB projected inflation to slow to 7.5pc in FY22, unchanged from its earlier April estimate, as food prices moderate with supply chain improvement and production increases facilitated by the government’s Agriculture Transformation Plan. Price rises for other goods are expected to be moderate as well thanks to tax relief in the FY2022 budget.

Inflationary pressures will likely come from ongoing economic recovery and rising global oil prices but should be tempered by expenditure reform and the government’s commitment not to borrow directly from the central bank. Risk of inflation higher than forecast derives from any unusual increase in oil prices or from potential currency depreciation in the wake of any early winding down of the ongoing IMF programme.

The fiscal deficit is forecast to narrow to the equivalent of 6.9pc of GDP in FY22, which is still higher than the target set earlier under a medium-term fiscal consolidation program supported by the IMF. Growth in revenue is projected to accelerate with the rapid pickup in domestic economic activity and higher imports. Expenditure is also projected to rise in FY22, as the government has budgeted substantial increases in subsidies and in social and development spending to protect the vulnerable and fortify growth and economic recovery.

Pakistan’s public debt outlook is sustainable in the medium-term. With primary and fiscal deficits, high borrowing costs, and currency depreciation, public external debt reached $95.2 billion in FY21.

Published in Dawn, September 23rd, 2021

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