ADB links reforms with improved economic conditions | Pakistan Today

ADB links reforms with improved economic conditions

The Asian Development Bank (ADB) in its recent report has said that economic reforms initiated by the government in the past year contributed to improved economic conditions, growth edged up, budget deficit shrank, foreign exchange reserves strengthened and a sovereign bond issue enhanced policy credibility.

The Bank in its Asian Development Outlook Update 2014 said that Pakistan in recent years has endured low growth, chronic power deficits and large fiscal and external imbalances.

However, several years of concerted national commitment will be required to eliminate electricity shortages and effect the structural reforms necessary to achieve high and inclusive growth.

Preliminary estimates place GDP growth at 4.1% in FY2014 (ended 30 June 2014), up from 3.7% in FY2013 and higher than the 3.4% projected in ADO 2014.

The ADB said that upturn came from improved industrial performance: a pickup in construction by 11.3%, continued growth in large-scale manufacturing at 4.0%, and electricity supply improved by 3.7% owing largely to the government’s clearance of intra-industry debt.

Growth in large-scale manufacturing reflected higher production of fertilizer, electronics, chemicals, and leather, while textile production marginally declined.

More proactive policies on energy allocation and management adopted during the year helped industry grow.

However, electricity and gas shortages will continue to limit growth and drain public finances for several more years, until further governance reform and new investment take effect.

Growth in services slipped to 4.3% in FY2014 from 4.9% a year earlier largely because growth in the finance and insurance sub sector and in general government services markedly slowed. Consumption expenditure picked up, however, boosting wholesale and retail trade.

Agriculture growth slipped to 2.1% from 2.9%, reflecting bad weather in areas that produce such minor crops as pulses and potatoes, as well as weaker growth in livestock, the latter of which accounts for 56% of agricultural production.

These developments outweighed strong expansion of 3.7% in major crops underlined by bumper harvests of rice, sugarcane, wheat, and maize-but not cotton, which suffered a small decline.

Private consumption remained the largest contributor to growth in FY2014 at 4.6 percentage points, helped by stronger remittances and improved rural incomes from major crops. The contribution of investment was a low 0.2 percentage points. A 0.5% increase in gross fixed capital formation came from a 17.3% expansion in general government investment, as private and public enterprise investment fell by 2.6%.

The ratio of fixed investment to GDP continued to decline, 3.7.1 Supply-side contributions to growth Percentage points Agriculture Services Industry gross domestic product.

Economic trends and prospects in developing Asia: South Asia Pakistan 147 falling to 12.4% from 12.6% in FY2013 (Figure 3.7.2). Private and public enterprise investment in the various production sectors slipped to 9.9% of GDP.

Net exports turned negative, subtracting 0.7 percentage points from GDP as import growth outpaced export.

Consumer price inflation accelerated to an average of 8.6% in FY2014 from 7.4% in the previous year. Year-on-year inflation was volatile, rising to 10.9% in November 2013, falling to 7.9% in January 2014, picking up again to 9.2% in April, and then falling again to 8.2% in June (Figure 3.7.3).

This largely tracked food inflation made volatile by short supplies of perishable items. Food inflation averaged 9.0% in FY2014 but ended the year at 7.4%. Following the increase in electricity tariffs in October 2013, nonfood inflation stabilized at around 9%, averaging 8.3% for the full year.

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