According to latest media reports, the World Bank has predicted global economic growth to rise to 3.1 percent during the current calendar year, as there are visible signs of recovery in investment, manufacturing and trade. Exporting developing economies are benefiting from firming commodity prices. But experts say this is a short-term upswing. Over the longer term, slowing potential growth-a measure of how fast an economy can expand when labor and capital are fully employed-puts at risk gains in improving living standards and reducing poverty around the world. Growth in advanced economies is expected to moderate slightly to 2.2 percent in 2018, as central banks gradually remove their post-crisis accommodation measures and as an upturn in investment levels off.
On the other hand, growth in emerging market and developing economies as a whole is projected to strengthen to 4.5 percent this year, as activity in commodity exporters continues to recover. According to the WB report, 2018 is on track to be the first year since the financial crisis that the global economy would be operating at or near full capacity. With slack in the economy expected to dissipate, policymakers would need to look beyond monetary and fiscal policy tools to stimulate shortterm growth and consider initiatives more likely to boost long-term potential. The slowdown in potential growth is the result of years of softening productivity growth, weak investment, and the aging of the global labor force. The deceleration is widespread, affecting economies that account for more than 65 percent of global GDP.
Surely, without efforts to revitalize potential growth, the decline may extend into the next decade, and could slow average global growth by a quarter percentage point and average growth in emerging market and developing economies by half a percentage point over that period. For Pakistan the World Bank has projected 5.5 percent growth rate in the current fiscal year against the budgeted 6 percent. This projection is premised on strong activity in construction related to the projects under China Pakistan Economic Corridor (CPEC), recovery in agricultural production (based on low output in the year before) and a robust domestic demand supported by enhanced credit and investment.
But there are many hurdles in the way. The government has only released 42 billion rupees out of the total budgeted 187.3 billion rupees for CPEC projects which indicates a slowdown in infrastructure projects with a consequent negative impact on construction activity. Secondly, the farm sector is under considerable stress for a variety of reasons ranging from water shortages to higher costs of production relative to other countries. No doubt, total credit to the private sector has increased - a strong sign that investment is picking up. However, sources reveal that the rise in credit is not only being used for new investment or reinvestment in existing units but also to meet the liquidity needs of several units due to the Federal Board of Revenue delaying refunds to show revenue figures that are better than is in fact the case.
A robust domestic demand in Pakistan is a fair assumption given that 2018 is an election year during which traditionally the government releases large chunks of funds to members of parliament for development work. It is relevant to point out here that robust domestic demand has not always reflected increased sales of domestically produced goods. Pakistan has porous borders with India and Afghanistan where smuggling flourishes while barter across the border trade with Iran is also significant. Since investment under CPEC/PSDP has slowed down due to lack of government disbursements, the growth rate may not be as high as projected. The situation calls for urgent action to stimulate growth in all sectors of the economy.