Karachi operation, CPEC bolstering investors’ confidence: World Bank

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WASHINGTON, Jan 7 (APP): Macroeconomic adjustments in Pakistan and efforts to crack down on violent crime in the country’s industrial and commercial hub of Karachi are supporting investors’ confidence, the World Bank said in its latest report while projecting the economic growth for Pakistan to accelerate to 4.5 percent in the current fiscal year.

The Bank, in its report “January 2016 Global Economic Prospects”,  said the China Pakistan Economic Corridor (CPEC) agreement, signed last year, had further bolstered investor optimism in the country.

The report praised the macroeconomic adjustment made by the government under an International Monetary Fund programme, saying it was progressing well.

Projecting Pakistan’s economy to accelerate to 4.5 percent in the current year, the report said that the CPEC agreement had the potential to lift Pakistan’s long-term growth.

On the external front, the report said Pakistan once again tapped the international capital markets and launched a $500 million Euro-bond in September, with the same maturity and coupon as its issue a year earlier.

The report said Pakistan stood to benefit from three tailwinds over the near- to medium- term, with average growth projected at 5.5 percent over the forecast period.

These included rising investments from China under the CPEC agreement; the anticipated return of Iran to the international economic community; and persistently low international oil prices.

CPEC would connect Western China to the Arabian Sea via the new port of  Gwadar.

Estimated at around $45 billion of investment until 2030, the initiative would finance a series of transport infrastructure projects ($11 billion, mostly public investment) and energy projects ($33 billion, mostly private), the report said.

The global growth, however, remained disappointed in 2015, slowing to 2.4 percent, and was expected to recover at a slower pace than previously envisioned.

Growth was project to reach 2.9 percent in 2016, as a modest recovery in advanced economies continued and activity stabilized among major commodity exporters, according to the report.

GDP growth in South Asian region as a whole rose from 6.8 percent in 2014 to 7.0 percent in 2015, the fastest among developing regions, as South Asia benefited from lower oil prices and improved resilience to external shocks, the report said.

A moderate further acceleration in economic activity was projected, with regional growth rising to 7.5 percent in 2018, buoyed by strengthening investment and a broadly supportive policy environment.

Risks to economies in the region were mainly domestic, the report said, and included reform setbacks in the reform momentum in India, political tensions or conflicts in smaller economies, and, over the longer term, the commitment of governments to the necessary fiscal adjustment.

South Asia might also face external headwinds from an increase in interest rates in the United States, although vulnerabilities were greatly reduced since 2013.

Key policy challenges included the substantial non-performing bank loans in several countries, and the need for further reforms in particular, to improve the ability of firms to do business within and outside the region, and to fully harness the ongoing demographic dividend.

On the global outlook, the report said that there remained downside risks to the outlook. Simultaneous weakness in most major emerging markets was a concern for achieving the goals of poverty reduction and shared prosperity because those countries have been powerful contributors to global growth for the past decade.

Spillovers from major emerging markets would constrain growth in developing countries and pose a threat to hard-won gains in raising people out of poverty, the report warned.

“More than 40 percent of the world’s poor live in the developing countries where growth slowed in 2015,” said World Bank Group President Jim Yong Kim.

“Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable.

“The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies.”

Global economic growth was less than expected in 2015, when falling commodity prices, flagging trade and capital flows, and episodes of financial volatility sapped economic activity.

Firmer growth ahead would depend on continued momentum in high income countries, the stabilization of commodity prices, and China’s gradual transition towards a more consumption and services-based growth model.

Developing economies were forecast to expand by 4.8 percent in 2016, less than expected earlier but up from a post-crisis low of 4.3 percent in the year just ended.

Growth was projected to slow further in China, while Russia and Brazil were expected to remain in recession in 2016.

“There is greater divergence in performance among emerging economies.

Compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy,” said World Bank Group Vice President and Chief Economist Kaushik Basu.

“A combination of fiscal and central bank policies can be helpful in mitigating these risks and supporting growth.”

Although unlikely, a faster-than-expected slowdown in large emerging economies could have global repercussions. Risks to the outlook also include financial stress around the U.S. Federal Reserve tightening cycle and heightened geopolitical tensions.

“Stronger growth in advanced markets will only partially offset the risks of continued weakness in major emerging markets,” said World Bank Development Economic Prospects Group Director Ayhan Kose.

“In addition, the risk of financial turmoil in a new era of higher borrowing costs remains.”