Pakistan’s economy will continue to pick up in fiscal year (FY) 2016 as reform and stabilisation measures provide a lift, with higher foreign exchange reserves, and softer inflation and oil prices also supporting the overall macroeconomic outlook, says the Asian Development Bank (ADB) in its latest flagship annual economic report.
The Asian Development Outlook 2016 (ADO), released Thursday, forecast growth of 4.5% for FY 2016 and 4.8% in FY2017. In FY2015, growth came in at 4.2%.
“While the outlook is for moderate gains in growth, the report also notes that continued public sector enterprise losses, insufficient energy and power evacuation capacity, and security concerns will continue to test the country’s economy”, the ADB outlook on Pakistan observed.
“Pakistan needs to stay the course of macroeconomic and structural reforms, in particular in revenue collection, the energy sector, and in revitalising public sector enterprises that have been causing a fiscal drain,” said ADB Country Director for Pakistan Werner Liepach.
“These reforms are critical for fiscal and economic sustainability and to promote investment and economic growth,” he remarked.
The ADO notes that large scale manufacturing grew by 3.9% in the first half of FY2016 from a rise of 2.7% in the same period the year earlier, boosted by low raw material prices, expanded construction, and low interest rates.
However, textile production grew by only 1% over the same period due to weaker demand in export markets and increased competition, with falling global commodity prices and heavy rains damaging cotton output, Pakistan’s vital agriculture sector is expected to experience slower growth in FY2016.
The ADB Outlook further said that the key challenges impeding stronger economic growth include inadequate infrastructure and transport connectivity, and limited access to finance.
“Low investment in human development has also left Pakistan with a workforce lacking the skills needed to help the country compete in global markets and to increase productivity by producing goods with higher value”, the report says.
It added that improved prospects for the economy, therefore, depend on faster implementation of ongoing reforms to alleviate power shortages, expanding fiscal space, fostering a competitive business environment, and liberalising trade.
The report further noted that ongoing and planned investments under the flagship economic corridor between Pakistan and the People’s Republic of China, as well as other regional cooperation initiatives, are spurring development activity and some market optimism.
Sustained economic reforms and an improvement in the security environment should further boost business confidence and foster increased private investment, the ADB said.
The ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members from the region.