ADB raises growth forecasts for Pakistan, but with a caveat
In an update of its annual economic publication, Asian Development Outlook 2017, the Asian Development Bank (ADB) reviewed its prospects for developing Asia, including Pakistan.
Here we take a look at the ADB’s future prospects for Pakistan and its current standing within the South Asian region which comprises Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka
For 2017-18, the bank maintained projections for growth and inflation, but stated that the current account deficit is expected to exceed the earlier forecast again by a wide margin.
The report states: assuming better growth prospects in advanced and developing economies alike, a continued revival in world trade volumes, and continued improvement in the security and business environment, GDP growth is expected to accelerate to 5.5 per cent.
The main impetus for industry and services growth will be expanded infrastructure investments under the China-Pakistan Economic Corridor (CPEC), other energy investments, and government development expenditure. Agriculture should expand by trend rates.
The government needs to address fiscal and external sector vulnerabilities that have reappeared with the wider current account deficit, falling foreign exchange reserves, rising debt obligations, and consequently greater external financing needs. Possible loss of momentum for making policy decisions may hamper growth prospects.
A key challenge will be to finance Pakistan’s burgeoning trade deficit as remittance inflows, however substantial, continue to fall
Rising domestic demand fuelled by economic expansion is expected to stoke inflation in FY2018. However, the ADO 2017 projection for 4.8pc inflation could stand with continued central bank policy vigilance, a muted increase in global oil prices, and some expected easing of global food prices.
An 18pc increase in tax collection and larger non-tax revenues would boost total revenue to 17.2pc of GDP.
Development expenditures are forecast to reach 6.3pc of GDP after public sector development programme allocations increased by half in FY2017.
The federal budget for FY2018 assumes two-thirds of deficit financing will come from domestic bank and non-bank sources with no borrowing from the central bank.