World Bank forecasts GDP growth rate at 4.5 percent in FY16

ISLAMABAD: The World Bank on Thursday projected Pakistan’s GDP growth rate at 4.5 percent for the current fiscal year, trimming one percent from the government’s target of 5.5 percent.

“The growth outlook for FY16 remains modest with growth expected to increase slightly to 4.5 percent of GDP in FY16 from 4.2 percent in FY15, driven by large scale manufacturing growth of 4.0-4.5 percent and services growth of over 5 percent,” said the bank in its report, titled “Pakistan Development Update: from stability to prosperity.”

The working paper said the country’s agriculture sector, after suffering a poor cotton harvest, is expected to have slowed to between two and 2.5 percent for 2015/16 as compared to 2.9 percent in 2014/15.

The World Bank said the expected growth rate remains well below the growth rates of the country’s South Asia peers. “A further growth revival will remain contingent on the government,” it said. The country’s growth rate is expected to rise to 4.8 percent in 2016/17.

The bank appreciated the government for restoring economic stability, but said much of the country’s economic growth was underpinned by external influences, such as low oil prices and strong remittances while private and public investments continued to remain low.

“The near-term outlook will be supported by three major near-to-medium tailwinds—rising investments under the China Pakistan Economic Corridor, persistently low international oil prices and the anticipated return of the Islamic Republic of Iran to the international community,” it said.

The latest twice-a-year report identified risks facing near-term future and a handful of key development challenges.

“Pakistan has made great progress in restoring macroeconomic stability but much more needs to be done to put Pakistan on a solid, economic growth footing,” the World Bank Country Director for Pakistan Illango Patchamuthu said. “Persistent, steady progress on the structural reform agenda will be necessary if Pakistan is to accelerate its growth recovery and lift millions more out of poverty.”

The report further said the pace of economic growth will accelerate modestly through to 2019. “However,  significant risks remain and the country should guard against global slowdown by continuing to make key reforms, including expanding the electricity supply, boosting tax revenues, strengthening the business environment and encouraging private sector to invest,” it said. 

The report identified services and large-scale manufacturing as the key supply-side drivers of growth. Services are expected to grow more than five percent in the current fiscal year while large-scale manufacturing, benefitting from low global commodity prices, is expected to grow between four and 4.5 percent. “On the demand side, consumption is driving growth, fueled by rising remittances and a loose monetary stance,” it said.

The World Bank was optimistic about the recent progress in fiscal consolidation, highlighting a 20 percent growth in the revenues of the Federal Board of Revenue for the first eight months of the current fiscal year. 

“Fiscal consolidation is one of the most significant reform challenges facing Pakistan today,” World Bank Lead Economist for Pakistan Enrique Blanco Armas said. “The federal government has kept a tight rein on recurrent expenditure, while continuing to invest in public sector development program expenditure, a very positive development.”

The working paper further said workers’ remittances and lower oil prices contributed most to the accumulation in foreign reserves. 

“Remittances of $9.7 billion in the first half more than compensated for the trade deficit, and oil prices delivered a 9.1 percent fall in the import bill,” it said. “The strong balance of payments headline figures mask the structural weaknesses in export competitiveness.” 

Exports fell 11.1 percent in the first half as a result of softer global demand and domestic bottlenecks. Port charges in Karachi, for example, are nine times higher than those in Dubai and Singapore. Shipping container dwelling times are three times longer than in East Asia.

“Exporters who want to participate in global supply chains are hamstrung by these constraints,” said the report.