Researched & Compiled by Insaf Research Team irt@insaf.pk Adnan F. Rehman: 03454888878 Faisal Hameed: 03314077640 Rana M. Ahmad: 03018444472 Shahbaz A. Khan:03147779222
Date: Apr 23, 2014
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BERIEF COMMENTARY ON THE CURRENT STATE OF ECONOMY OF PAKISTAN
Macroeconomic and security challenges continue to weigh on the economy. Growth is expected to remain modest in Fiscal Year 2014, largely reflecting fiscal consolidation to deal with high deficits that have caused macroeconomic imbalances.
The government has embarked upon a program of fiscal and structural reform, supported by an Extended Fund Facility Arrangement with the International Monetary Fund, to restore macroeconomic balance, relieve energy shortages, and guide the economy toward faster and more sustainable growth.
Economic Performance Indicators: Moderate growth in gross domestic product (GDP) in FY2013 reflected weak macroeconomic fundamentals in recent years. Investment remained low as energy shortages and security concerns continued to undermine investor confidence.
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Fiscal pressures kept the budget deficit very high for the second consecutive year. At the same time, however, inflation fell into single digits. Stable global commodity prices, Coalition Support Fund (CSF) inflows, and continued growth in worker remittances reined in the current account deficit. GDP growth slowed to 3.6% in FY2013 (ended 30 June 2013) as weak expansion in the large service sector more than offset improved growth in manufacturing.
Economic Performance by SBP: The State Bank of Pakistan (SBP) projected gross domestic product (GDP) growth between 3-4% in fiscal year 2013-14 (FY14), which is higher than the International Monetary Funds (IMF) growth forecast of 2.5 percent to 3.0 percent. Pakistans economy grew at 3.6 percent and inflation fell to a single-digit in FY13, says the SBPs Annual Report on the State of Economy for FY13. It said soft global commodity prices, downward revision in energy prices and a relatively stable exchange rate allowed the average inflation rate to fall to 7.4 percent in FY13, which was much lower than the 9.5 percent target for the year.
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According to the report, robust growth in construction activity and capacity enhancement in a few sub-sectors supported the industrial sector. Global prices helped contain Pakistans import bill, and there was some improvement in exports. Furthermore, higher than anticipated Coalition Support Fund (CSF) inflows, and modest growth in workers remittances, reduced the current account deficit to 1.0 percent of GDP in FY13. The SBP report said that challenges in managing public sector enterprises, the need to expand the tax net to untaxed or under-taxed areas, to contain untargeted subsidies, to tackle theft and leakages in the energy sector; to revitalize the private sector, and to increase documentation, were largely unaddressed during FY13.
Economic Performance by IMF: According to IMF, Pakistan has met nearly all of its quantitative performance markers, that its economy is showing signs of improvement and that its reform program remains broadly on track. The nuclear-armed nation of 180 million people faces a host of obstacles as it tries to restructure its economy and buoy its dangerously low foreign currency reserves, which stand at $8.3 billion.
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While trying to reel back expenditures and reorganize steep subsidy bills, officials say it is essential that economic reforms do not hurt the millions of Pakistanis who live in poverty on less that $2 a day. Pakistan signed a $6.7 billion loan with the IMF in September13 to rebuild its reserves after more than two years of depletions and support structural changes aimed at boosting investment and growth. The IMF loan to Pakistan came less than six years after the country's last IMF bailout, and the driving need for the money this time was to repay the institution nearly $5 billion that Islamabad still owes. As part of that agreement, the IMF conducts periodic reviews in order for its executive board to approve installments of $550 million spread out over three years. Pakistan has already undergone one economic review and received two installments totaling nearly $1.1 billion.
In conclusion, on current economic prospects of Pakistan GDP growth is projected at 3.4% for FY2014, marginally slower than in FY2013. Agriculture is expected to be weaker due to a drop in cotton output, which partly offset the improvement in sugarcane and rice crops. Ongoing rains, however, may benefit the upcoming wheat crop, despite a reduction in the sowing area this year.
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GDP growth is expected to be higher in FY2015, at 3.9%, as the impact of fiscal consolidation eases somewhat, energy supplies improve, and the global economy strengthens.
Selected Economic Indicators of Pakistan Selected Economic Indicators (%) Pakistan 2014 2015 GDP Growth 3.4 3.9 Inflation 9.0 9.2 Current Account Balance (share of GDP) -1.4 -1.3 Source: ADB. 2014. Asian Development.
References / Source: 1) Economy of Pakistan by ADB: http://www.adb.org/countries/pakistan/economy 2) Economy of Pakistan by SBP: http://www.sbp.org.pk/ecodata/index2.asp#monetary 3) Economy of Pakistan by IMF: https://www.imf.org/external/country/PAK/