KARACHI: “Pakistan’s economy will struggle to grow fast this year but the country can do better in the future provided the necessary economic reforms make it through the country’s complex power structure,” the Asian Development Bank’s (ADB) top official for Pakistan said.
After devastating summer floods caused economic growth to slow to 2.4 per cent in the 2010/11 fiscal year, ADB country director for Pakistan Werner Liepach forecast growth to pick up to just 3.6 per cent in 2011/12. The government targets an expansion of 4.2 per cent.
“Short-term there are huge challenges... (the) next few months will continue to be protracted as there are repayments and not enough inflows, reserves will go down,” Liepach said.
“But I don’t see a crash coming, and I don’t see the economy taking off either and that’s not good enough.”
There is grave concern amongst analysts about a possible balance of payments crisis as Pakistan’s current account deficit has widened to $2.154 billion in the first six months of the 2011/12 fiscal year.
Pakistan had a surplus of $8 million in the same period last year.
The deficit is likely to widen further in the coming months because of debt repayments and a lack of external aid.
The country’s foreign exchange reserves stood at $16.90 billion in week ending Jan. 13, compared with its record of $18.31 billion in July last year.
The pressure on reserves is likely to continue especially as IMF repayments start from next month.
In 2008, Pakistan and the IMF agreed on a 3-year loan package worth $11 billion. But the programme was halted in 2010 because of slow implementation of fiscal reforms, and only $8 billion has been disbursed so far.
Pakistan has to repay IMF about $1.1 billion by the end of 2011/12 fiscal year.
“Pakistan has huge potential and not all is negative or gloom and doom,” said Liepach. “I am positive in the long term if right decisions are taken today.”
Pakistan has been criticised over its slow implementation of fiscal reforms which include elimination of energy subsidies and restructuring of the state owned utilities.
The government also received criticism for not being committed towards implementing the necessary reforms to bring the economy back on track.
“The people who we are talking to in the government, technocrats, they are committed and want to see the benefits and improvements in Pakistan, they are very sincere in bringing a change in Pakistan,” said Liepach.
“But when you move away from the technocrat level, that’s when it becomes more complicated. It is a complex decision making system.”
Focus on projects and delivery of results
ADB’s focus and therefore assistance largely now revolves around projects with four core areas, energy, urban services, water infrastructure and irrigation, and transport.
“We want to fight poverty through growth and right now our business is focused on implementation of projects and to get results on ground,” said Liepach.
ADB does not require a letter of comfort from the IMF for approval or disbursement of project-based assistance.
ADB has an envelope of $2.9 billion for energy for Pakistan until 2016, out of which $1.4 billion has been utilised and $1.5 billion remains to be drawn down by the government.
Pakistan’s power sector faces a shortfall that often peaks at 5,000 megawatts per day.
For urban services, the board has approved $300 million, out of which $260 million remains, water infrastructure and irrigation $900 million has been approved with about $400 million left to be drawn down and $1.1 billion has been approved for transport, and $700 million is left.
Government can draw down the assistance when a project is approved and made effective.
“It’s a success when power reaches families and industries or when water becomes available to the families etc,” said Liepach.