ADB prog­no­sis

The Pak Banker - - FRONT PAGE -

The Asian De­vel­op­ment Bank in its Out­look Up­date 2018 paints a pos­i­tive pic­ture of Pak­istan econ­omy. The Bank has ad­vised the PTI gov­ern­mentto ad­dress the large bud­get and cur­rent ac­count deficits, ris­ing debt obli­ga­tions, and fall­ing for­eign ex­change re­serves. The re­port says that this re­quires mo­bi­liz­ing sub­stan­tial ex­ter­nal fi­nanc­ing to buy time for or­derly re­form to re­duce the large ex­ter­nal and do­mes­tic im­bal­ances.Such re­sources can be ac­quired from bi­lat­eral and mul­ti­lat­eral sources, the di­as­pora, or in­ter­na­tional cap­i­tal mar­kets. The key chal­lenges are to adopt the right re­forms and achieve good out­comes to sus­tain pub­lic sup­port. To quote ADB,"Pak­istan's econ­omy has time and again shown re­silience and the ca­pac­ity to bounce back. Al­though for­mi­da­ble de­vel­op­ment chal­lenges re­main, we ex­pect the sta­bil­ity fos­tered by the smooth po­lit­i­cal tran­si­tion and the new gov­ern­ment's strong com­mit­ment to fo­cus on pock­ets of vul­ner­a­bil­i­ties and im­ple­ment pro-job and so­cioe­co­nomic de­vel­op­ment poli­cies that will stim­u­late ro­bust, sus­tain­able growth in the years ahead".

Ac­cord­ing to ADB, Pak­istan's econ­omy ac­cel­er­ated to 5.8%, the high­est in 13 years, in Fis­cal Year (FY) 2018 end­ing on 30 June 2018. The ro­bust growth is cred­ited to an uptick in in­dus­try, bet­ter agri­cul­tural crops, and an ex­pand­ing ser­vices sec­tor. In­fla­tion re­mained mod­er­ate. The up­date of the Asian De­vel­op­ment Bank's (ADB) flag­ship an­nual eco­nomic pub­li­ca­tion noted that the cur­rent ac­count deficit in FY2018 swelled to $18 bil­lion, or 5.8% of GDP, sig­nif­i­cantly up from 4.1% in FY2017. Ex­ports re­vived to grow by 12.6% to $25 bil­lion with in­creases in such tra­di­tional stand­bys as tex­tiles, chem­i­cals, leather, and food, but im­ports in­creased by 14.7% to $56 bil­lion, partly spurred by pur­chases of ma­chin­ery and trans­port equip­ment for the CPEC and other in­vest­ments but also of in­ter­me­di­ate goods for agri­cul­ture and the tex­tile and metal in­dus­tries, and of pe­tro­leum, which has ac­counted for just over a third of the in­crease in im­ports as cur­rent ac­count deficit es­ca­lated over the past 2 years

ADB has as­sured that it will work closely with the gov­ern­ment and the pri­vate sec­tor to im­prove Pak­istan's ba­sic pub­lic ser­vices, in­fra­struc­ture, food and en­ergy se­cu­rity, and at­tract in­vest­ment and trade to cre­ate jobs and im­prove the qual­ity of life of the coun­try's cit­i­zens. The ADO 2018 Up­date fore­casts that if the gov­ern­ment is suc­cess­ful in ob­tain­ing fi­nance, Pak­istan will have rea­son­able growth prospects for FY2019 on the strength of an im­proved se­cu­rity and en­ergy sup­ply, con­tin­ued in­vest­ment in the CPEC and other ini­tia­tives, and recog­ni­tion of the need to rein in deficits. Chal­lenges to main­tain­ing the growth mo­men­tum are tighter mon­e­tary and fis­cal poli­cies to con­tain do­mes­tic de­mand, cur­rency de­pre­ci­a­tion, and ten­sion in the global trade en­vi­ron­ment. On bal­ance, the up­date projects GDP growth in FY2019 at 4.8%, down by 1.0 per­cent­age point from last year.

Ac­cord­ing to ADB, on the sup­ply side, water short­ages in some ar­eas are likely to keep agri­cul­tural pro­duc­tion be­low tar­get in FY2019. Growth in man­u­fac­tur­ing and ser­vices will likely be af­fected by fis­cal and mon­e­tary tight­en­ing. On top of deal­ing with macroe­co­nomic im­bal­ances, the new gov­ern­ment faces long-de­layed de­ci­sions on rais­ing tar­iffs to con­tain rapidly ris­ing and po­ten­tially dis­rup­tive in­ter­com­pany ar­rears in the en­ergy sec­tor-so called "cir­cu­lar debt" that ex­ceeds PRs1.4 tril­lion, or 5% of GDP.Av­er­age an­nual in­fla­tion is pro­jected to reach 6.5% in FY2019 be­cause of cur­rency de­pre­ci­a­tion and el­e­vated in­ter­na­tional oil prices. In­fla­tion ac­cel­er­ated sharply for both food and other pur­chases in the first two months of FY2019, to 5.8% from 3.2% a year ear­lier. The SBP in­creased the pol­icy rate by 100 bps to reach to 7.5% in July 2018 in an ef­fort to con­tain the in­fla­tion. ADB says the new gov­ern­ment needs to move swiftly to put in place its macroe­co­nomic poli­cies in­clud­ing fis­cal, mon­e­tary, tax, and trade re­form poli­cies to pro­mote fi­nan­cial sta­bil­ity and growth.

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