Pakistan growth prospects continue to improve, inflation contained: World Bank Report

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WASHINGTON, April 19 (APP):Pakistan’s growth prospects continue to
improve with impetus of growth projected to come from services and the industrial sector, according to a latest World Bank report.
The report titled “Globalization Backlash”, which discussed South
Asian economies,projected the economy to grow by 5.2 percent in the current fiscal year while inflation continues to be contained. On the demand side, the near-term growth outlook will primarily be supported by public and private consumption. Investment to GDP ratio will improve marginally due to CPEC and other public investment.
“On the supply side, impetus to growth is projected to come from
services and the industrial sector. The services sector is expected to grow by 5.6 percent and the industrial sector is expected to grow by 6.1 percent in FY2017,” the report said.
The China Pakistan Economic Corridor (CPEC) projects have supported
construction activity, which is expected to stimulate industrial sector growth in the second half of FY2017. Large Scale Manufacturing (LSM) growth , year-on-year remained at 3.9 percent during the first half of FY2017, supported by growth in automobiles, construction, food & beverages, pharmaceuticals, and fertilizer.
After a weak performance in the FY2016, the agriculture sector is
expected to grow at 3.4 percent in the FY2017.
The reported expected the current account deficit to widen from 1.2
percent of GDP in FY2016 to 2.2 percent in FY2017 and 2.4 percent by FY2019. “The key contributor to this will be a widening of the trade deficit due to moderate growth in exports.
The export decline is also supported by weakening of exports to
competitiveness and global demand, while the high growth in import is due to increase economic activity.
The ongoing China Pakistan Economic Corridor is helping the FDI inflow
and the accelerated implementation of CPEC projects will help further strengthen it.
Official foreign exchange reserves are projected to decline to 3.2
months of imports by FY2019 due to larger current account deficit, and higher debt repayments, including IMF repayments. The report projected the fiscal deficit to be 4.8 percent in FY2017, 0.3 percentage point higher than the FY2016 deficit.
Inflation has already bottomed out and is projected and projected
increases in economic activity and an expected gradual increase in energy prices will push up domestic prices. Inflation is projected to increase from 2.9 percent in FY2016 to 5.0 percent in FY2017 and 7.0 percent in FY2019.
The report, however, noted significant downside risks to projected
outlook due to general elections due in 2018 which may affect reform momentum and macroeconomic policy orientation. “Slower progress in much-needed structural reforms could weaken growth prospects”.
Lingering uncertainty about the course of US economic policy and the
possibility of a protracted global economic weakness, especially in the Euro area due to Brexit, could negatively affect exports, the report said in its outlook forecast for the country.
“Pakistan is also vulnerable to any significant decline in remittance
flows, particularly from oil-rich countries, if oil prices remain depressed,” the report said but added that low oil prices will also improve the current account deficit and create an environment conducive for a reduction in energy subsidies.
Large Scale Manufacturing (LSM) growth (Y-o-Y) remained at 3.9 percent during the first half of FY2017, supported by growth in automobiles, construction, food & beverages, pharmaceuticals, and fertilizer.
The report noted that the external account improved during FY2016 and reserves rose to US$18.1 billion by end of FY2016, equivalent to 4.1 months of prospective imports. Country risk improved and Standard and Poor’s raised its rating to B in October 2016.
Pakistan was also able to issue US$1.0 billion Sukuk at relatively low
rates in October 2016. It was upgraded to ‘emerging market status in the MSCI Index.