ISLAMABAD: The World Bank has projected that the investment growth rate in Pakistan, which declined for several years in the past, is projected to rise during 2014-16.
According to the ‘Global Economic Prospects’ released on Wednesday, the projected gradual revival of investment growth will depend to a large extent on credible efforts to reduce infrastructure and energy bottlenecks, create a predictable regulatory environment, implement labour market reforms, and continue fiscal consolidation.
In Pakistan, preferential market access by the European Union (GSP+) could help export performance, but energy supply shortages may hamper exports.
Among other South Asian countries, growth in Pakistan, the second largest economy, remains below the regional average, but improving with GDP in 2013-14, estimated to have grown 3.7 per cent, broadly stable from previous fiscal year, but significant in the context of fiscal adjustment required to overcome the threat of a balance of payment crisis.
The GDP growth during 2013-14 accelerated to 4.14pc against the growth of 3.7pc recorded during the same period last year. According to the World Bank report, GDP growth in South Asia is expected to pick up modestly in 2014, and then rise to about 6pc in 2015 and 2016, with firming global demand and easing domestic constraints offsetting a tightening of international financial conditions.
Pakistan’s weaker growth relative to its peers mainly reflects significantly lower investment rates in part due to energy supply bottlenecks and security uncertainties, the World Bank report says.
The report says that despite some consolidation, notably in Pakistan and India, fiscal deficits in the region remain high, in part reflecting weak revenue mobilisation. Private capital flows to the region have grown steadily since the mid-2013 turmoil, while remittances despite easing provided support to consumption and external balances.
Stating that medium term growth will have to come from structural reforms that boost growth potential, the economic prospects report says developing countries have shown their ability to prosper even as high-income country growth and imports weakened, but to continue to do so they will need to reinvigorate domestic reforms that have taken a back seat to fire-fighting and demand management in the post-crisis period.
The report says that a projected decline in international crude oil prices in 2014-16 could provide governments in South Asia with an opportunity to gradually reduce subsidies without big hits to household pocket books. Measures to simplify the tax system, broaden the tax base, and improve compliance can help to raise tax revenues as a share of GDP and help in fiscal consolidation, it says.
The report says that El Nino is a key near-term risk for regional growth prospects.
Weak monsoon rains can have significant impacts on agricultural production, consumption and GDP growth.
Published in Dawn, June 12th, 2014