ISLAMABAD: Pakistan’s economy is showing signs of recovery owing to thegovernment’s fiscal consolidation and austerity measures, the AsiaDevelopment Bank (ADB), in its flagship economic publication titled ‘AsianDevelopment Outlook-Update 2019′, has projected Pakistan’s GDP growth rateat 2.8pc for the fiscal year 2019-20.
Though slower than the last fiscal year (2018-19), the growth rateprojections by ADB are higher than the GDP target of 2.4pc set by theincumbent government for the FY20. The bank has projected inflation ratefor Pakistan at 12pc.
It may be noted that the 2.8pc GDP growth for Pakistan is the lowest inSouth Asia while 12pc inflation is the highest among the bloc of eightnations.
As per the report, fiscal adjustments are expected to suppress domesticdemand, contraction of which would keep growth in manufacturing subdued.However, the agriculture sector is expected to recover from weather-inducedcontraction this year with major incentives in the government’s agriculturesupport package included in the budget for FY2020.
On the external front, the ADO noted, trade deficit shrunk by nearly halfin July, the first month of FY2020, from $3.4 billion a year earlier to$1.8 billion.
“With further narrowing of the trade deficit and a continued positive trendin workers’ remittances, the current account deficit is projected to narrowfurther to 2.8pc of GDP in FY20,” it said. “Import payments will remainsubdued, reflecting weak economic activity and the pass-through of recentrupee depreciation against US dollar. The real effective exchange rate isnow thought to be near equilibrium, and a lower and more stable rupee isexpected to improve export competitiveness.”
The foreign capital inflows are expected to increase, the report said,adding that the foreign direct investment should revive, as investorconfidence was restored with the implementation of the IMF’s stabilisationand reform programme.
“This should also help bring additional finance from multilateralinstitutions and other international partners.”
Along with the activation of a Saudi oil facility with potentialdisbursements of $1 billion in the current fiscal year, these developmentsare expected to raise foreign exchange reserves to reach more than $10billion by the end of FY2020, it added.
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The report said in order to restore macroeconomic stability, the governmentplans to catalyze significant international financial support and promotesustainable and balanced growth under a 3-year economic stabilization andreform programme with the International Monetary Fund.
Fiscal consolidation under the programme aims to reduce the large publicdebt, besides expanding social expenditure, establishing a flexibleexchange rate regime to restore competitiveness, and rebuilding officialreserves.
The economic reform programme supported by the IMF envisages a multi-yearstrategy for revenue mobilization to pare public debt to a sustainablelevel. The budget assumes tax revenue increased to equal 14.3pc of GDP.With non-tax revenue projected at 2.3pc of GDP in FY2020, total revenue isexpected to increase to 16.6pc of GDP.
Expenditure in FY20 is projected to equal 23.8pc of GDP with an increase of1.8 percentage points in current spending to cover larger interest paymentsand higher allocations for social spending. The budget deficit in FY20 isexpected to equal 7.2pc of GDP, 1.7 percentage point lower than the FY2018outcome.
According to the report, Pakistan needs to press ahead with macroeconomicand structural reforms to revitalize public sector enterprises; improverevenue collection; ensure energy and water security.
“The financial account surplus narrowed by 16.2pc in FY19. The $2.3 billionfall is mostly attributable to $1.8 billion less foreign direct investmentowing to policy uncertainty and also due to the winding down of energy andinfrastructure projects in the China Pakistan Economic Corridor,” itconcluded.
