Pos­si­ble loss of mo­men­tum to make de­ci­sions may hit Pak­istan’s growth: ADB

The Gulf Today - Business - - Region3 -

IS­LAM­ABAD: Calm has re­turned to Pak­istan fol­low­ing the po­lit­i­cal un­cer­tainty height­ened by the Supreme Court’s de­ci­sion to dis­qual­ify Nawaz Sharif as the prime min­is­ter, but still pos­si­ble loss of mo­men­tum for mak­ing pol­icy de­ci­sions may ham­per prospects for eco­nomic growth in the coun­try, said the Asian De­vel­op­ment Bank (ADB) in an up­date to its an­nual eco­nomic re­port.

The re­port feared that there are down­side risks, point­ing out that growth has im­proved but the PML-N gov­ern­ment which will con­tinue to lead un­til new par­lia­men­tary elec­tions are held by the third quar­ter of 2018 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

The up­date of ‘Asian De­vel­op­ment Look 2017’ notes that GDP growth is ex­pected to ac­cel­er­ate to 5.5 per cent in Pak­istan 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.

The main im­pe­tus for in­dus­try and ser­vices growth will be ex­panded China-pak­istan Eco­nomic Cor­ri­dor (CPEC) in­fra­struc­ture in­vest­ments, other en­ergy in­vest­ments, and gov­ern­ment de­vel­op­ment ex­pen­di­ture. Agri­cul­ture should ex­pand by trend rates, the re­port says.

A key chal­lenge will be to fi­nance Pak­istan’s bur­geon­ing trade deficit as re­mit­tance in­flows, how­ever sub­stan­tial, con­tinue to fall.

Bet­ter prospects for global growth and trade are ex­pected to fur­ther the re­cent im­prove­ment in ex­port per­for­mance, how­ever weak, in FY17.


Ex­ports are likely to take off, though, only with ad­e­quate and re­li­able power sup­ply and other sup­port­ing in­fra­struc­ture and pol­icy. The re­port says that im­ports are ex­pected to con­tinue to in­crease as growth spurs do­mes­tic de­mand that do­mes­tic pro­duc­tion can­not meet.

July 2017 im­ports were, though 8% less than the peak in June, 50.9pc above a year ear­lier. Petroleum ac­counted for a quar­ter of the in­crease, while im­ports dou­bled for power gen­er­a­tion ma­chin­ery and con­struc­tion, much of it ap­par­ently re­lated to the CPEC.

Worker re­mit­tances have shown some un­ex­pected im­prove­ment, how­ever, in the first two months of FY18, in­creas­ing by 13.2% from the same pe­riod in FY 2017. If this re­bound can be sus­tained for the rest of FY18, it may ame­lio­rate the pro­jected deficit, the ADB re­port be­lieved.

In any case, the au­thor­i­ties may need to con­sider rapid cur­rency de­pre­ci­a­tion at some point to rein in im­port growth, or in­crease for­eign bor­row­ing to fi­nance the ex­ter­nal gap, to pre­vent any un­due weak­en­ing of for­eign ex­change re­serves, the ADB cau­tioned.

ADB re­port says that over the medium term, in­creas­ing gov­ern­ment and Cpec-re­lated re­pay­ment obli­ga­tions high­light the need to care­fully man­age ex­ter­nal debt, the bal­ance of pay­ments, and their fi­nanc­ing re­quire­ments, while in­sti­tut­ing macroe­co­nomic and struc­tural poli­cies to sup­port eco­nomic sta­bil­ity and make Pak­istan more com­pet­i­tive.

Mean­while, the Asian De­vel­op­ment Bank ap­proved $800 mil­lion multi-tranche fi­nanc­ing fa­cil­ity to help en­hance re­gional con­nec­tiv­ity and trade in the Cen­tral Asia Re­gional Eco­nomic Co­op­er­a­tion (CAREC) cor­ri­dors in Pak­istan.

Un­der the CAREC cor­ri­dor de­vel­op­ment in­vest­ment pro­gramme, the Na­tional High­way Au­thor­ity will re­ha­bil­i­tate and up­grade the road net­work of 747 kilo­me­tres, con­sti­tut­ing the CAREC Cor­ri­dors mainly in Sindh, Pun­jab, and Khy­ber Pakhtunkhwa (KP).

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