The World Bank has forecast a brighter picture of Pakistan economy saying that the outlook for the current financial year is better than last year with business confidence picking up, and spur in manufacturing and service sectors activity. It said the economy was at a turning point and the GDP growth which was at 3.6 per cent in FY 13 might improve this year.
In its Pakistan Country Programme Snapshot 2014, it said the GDP growth is recovering and projected to grow by 3.6 per cent. The report said the inflation had stabilised below nine per cent after the central bank raised interest rates and it looks set to stay in the single digit over FY 14.
On the fiscal side the picture has improved following austerity measures by the newly-elected government which is also pursuing ambitious tax reform. The WB Report said Pakistan had made definite progress in reducing absolute poverty and improving shared prosperity but many are still poor. It said an estimated 23 million people or 13 per cent of the population live on just $ 1.25 to $ 1.50 a day and improving service delivery to those who are vulnerable is a top priority.
It pointed out that thus far growth is being led by the industrial and service sectors as agriculture is expected to miss its annual target.
About fiscal and debt status, the report says after six years of running high fiscal deficit, Pakistan’s fiscal indicators seem to be improving. The newly-elected government appears to be more committed to fiscal discipline. The FY 14 budget presented a strong revenue effort to bring down the fiscal deficit from 8 per cent of GDP in FY 13 to 6.4 per cent in FY 14. It hoped that the overall fiscal deficit was expected to fall to 5.8 per cent in FY14. The lower deficit along with higher external financing implies that the need for domestic financing would be much lower than in the last three years. This would help not only in containing inflationary pressures but also freeing additional banks’ resources for private credit.
The Bank appreciated that the government had moved simultaneously on many fronts. Not only it has increased the tariff rates (especially of GST) and cut down some fiscal concessions, it is also trying to expand the tax base to untaxed or lightly taxed sectors. These efforts towards fiscal consolidation appear to be paying off.
The report noted that Pakistan still faces significant governance challenges that could hamper policies to reduce poverty and spur economic growth. These challenges range from the rule of law, security and a legacy of corruption. Addressing these is critical to the success of policies to improve service delivery, competitiveness and the vital energy sector as well as fostering stability in the country.