Need for increased investment in social sectors like health, education and nutrition stressed
The World Bank report on ‘Pakistan Development Update – Making growth matter’ was launched in Karachi, recently. It stated that Pakistan is rated among top emerging economies and its economy grew by 4.7 percent in this fiscal year.
This was the highest rate in eight years and a significant increase from the previous year’s 4 percent. The growth was driven by consumption. Consumption accounted for an overwhelming 92 percent of GDP in fiscal year 2016, and contributed 7 percentage points towards GDP growth (moderated by a negative contribution of 2.2 percent from net exports), supported by sustain growth in remittances.
World Bank says growth rate to remain between 4.7 percent and 5.4 percent in two years. Delay in China-Pakistan Economic Corridor (CPEC) project, decrease in investment and exports, possible increase in oil prices and government borrowing are major risks.Pakistan has reached the highest point of its economic progress as the eight-year has broken and the poverty level is coming down while the growth in two years will remain between 4.7 percent and 5.4 percent.
Outlining three major risks hampering the future growth prospects of Pakistan, including delays in CPEC projects, the World Bank has projected the GDP growth to touch 5 percent during the current financial year against the officially envisaged target of 5.5 percent.
The ratio of investment to GDP is 15.6 percent — compared with an average rate in South Asia of 34 percent between 2010 and 2015. Pakistan’s much lower rate of investment is driven by its volatile security situation, energy shortages and poor business regulatory environment (now ranked 144 of 190 countries).
The World Bank’s 2017 Doing Business report found that Pakistan improved four ranks in 2017 — placing it among the top ten ‘most improved’ countries — although this was preceded by a fall of 72 ranks between 2008 and 2016.
The implementation of the federal and provincial governments’ joint action plan to improve the investment climate will be one important step towards reversing this long-term trend.
Over the last five years, public debt has remained above the 60 percent limit stipulated in the Fiscal Responsibility and Debt Limitation Act (FRDLA) of 2005. As of end-June 2016, total public debt stood at 67.4 percent of GDP, an increase of 3.3 percentage points from June 2015.
Domestic debt continued to dominate the total stock in fiscal year 2016. However, foreign currency public debt also increased significantly by 1.6 percentage points.
This was likely due to the slight depreciation of the Pakistani Rupee against US Dollar, sizeable revaluation losses as a result of the depreciating US Dollar against Japanese Yen, disbursements under multilateral loans, the ongoing IMF program and substantial commercial borrowings. The debt-to-GDP ratio is expected to fall in the medium term.
World Bank great concern over the continuously falling exports of the country. Pakistan’s exports have continued to decline in the last 10 years compared to Bangladesh’s exports that grew. Low exports may lead to a widening current account deficit to 1.7 percent of GDP in fiscal year from 1.1 percent in fiscal year 2016.
Malnutrition is a particular concern of the World Bank that has worsens over the last 20 years. Pakistan has the third-highest rate (43.7 percent) of stunting in the world. Despite economic growth, and unlike its regional peers, it has made no progress on nutrition indicators in recent decades.
The World Bank says that CPEC delays and inadequate revenue mobilization are two risks to near-term growth. The gradual growth trend is underpinned by increased public investment through CPEC.
“If CPEC is not implemented as expected in fiscal year 2017, this will reduce the growth outlook,” the report warned. External and internal balances could be affected by large increases in oil prices, the World Bank states and added that third major risk was the fallout from Brexit could still harm Pakistan’s exports.
The services sector is anticipated to grow by 5.6 percent in fiscal year 2017. After a lean performance in fiscal year 2016, the agriculture sector is expected to recover sufficiently to grow at 2.7percent in fiscal year 2017, while industrial sector is forecast to grow at 5.7 percent.
On the demand side, growth is expected to be primarily driven by public and private consumption, supported somewhat by a moderate increase in investment.
The investment-to-GDP ratio would increase to 14.4 percent in fiscal year 2017 and 14.6 percent in fiscal year 2018 from 14 percent in last two years. The low investment-to-GDP ratio is expected to increase due to infrastructure projects under China-Pakistan Economic Corridor (CPEC) and other public investment.
These projects, if delivered on schedule, are expected to accelerate growth in the domestic construction industry and expand electricity generation. Improved electricity availability would, in turn, support growth in industry and services sectors.
It stated that Pakistan economy will witness a continued mushroom growth of 5.4 percent in fiscal year 2018 in the services sector, recovery of agriculture and expansion in infrastructure investment. The services sector, which comprises more than half of the economy, is expected to be the primary source of growth.
For sustained growth, Pakistan must implement structural reforms and improve wellbeing for all. The government has continued to deliver on its structural reform program, although challenges remain.
World Bank Country Director for Pakistan Patchamuthu Illangovan stressed the need for increased investment in social sectors like health, education and nutrition. World Bank Lead Country Economist, Enrique Blanco Armas, added that “growth will depend on structural reforms, CPEC implementation and investment in health and education.”