Macroeconomic stability major concern in Pakistan: WB
Macroeconomic stability in Pakistan is a major concern for the near-term economic outlook, and several shortterm measures will be required to correct external and domestic imbalances, which must be complemented with implementation of medium-term reforms, said the World Bank.
In its report, ‘South Asia Economic Focus Spring 2018’ released in April, the World Bank has noted that Pakistan’s economic growth continues to accelerate but macroeconomic imbalances are widening.
The balance of payments position is particularly vulnerable at the current level of reserves, claimed the report. “Upcoming elections may delay decisive policy adjustment, such as increased exchange rate flexibility and fiscal consolidation, until after the elections. In the medium-term, the government needs to put considerable effort in reforming its tax system and tackle competitiveness challenges,” the report observes.
A strategy based on lowering the cost of doing business and improving productivity would be critical for higher and sustainable export growth, emphasises the World Bank.
The GDP growth is projected to reach 5.8 per cent in 2018, however, after the general elections, expected policy adjustments to correct for macroeconomic imbalances are projected to lead to a slowdown in growth in 2019, driven by contraction in domestic consumption and investment. “But the growth is expected to recover in 2020 and reach 5.4pc. This recovery is contingent upon restoring and preserving macroeconomic stability, as well as steady progress in implementing reforms which tackle key growth constraints,” the World Bank report adds.
Focusing on the outlook, the report claims that the GDP growth was projected to reach 5.8pc in 2018, supported by infrastructure projects of the China-Pakistan Economic Corridor (CPEC), improved energy supply and persistent private consumption growth.
The outlook assumes that oil prices will increase moderately but remain low and that political and security risks will be managed.
The pressure on the current account is expected to persist as the trade deficit is projected to remain at an elevated level during fiscal year 2019. Increased exchange rate flexibility should support exports and imports are expected to slow down in 2019. Remittances will continue to partly finance the current account deficit; nonetheless, slower growth in Gulf Cooperation Council (GCC) countries will affect migrants’ employment options and growth in remittances.
According to the report, foreign direct investment (FDI), multilateral, bilateral, and private debt-creating flows are expected to be the main financing sources in the mediumterm. To meet external financing needs, the government will continue to access international markets, the report says.