‘Pakistan economy seen performing modestly better in FY10’ ( SOURCE )
ADB sees poor security conditions and electricity crisis
hampering growth; urges faster economic changes
KARACHI: Pakistan’s economy is likely to perform modestly better in fiscal 2009/10 (July-June), as compared to the previous year, but poor security conditions and grave electricity crisis hampers growth, the Asian Development Bank (ADB) said in its latest report released on Tuesday.
“The security environment and an ongoing power crisis are both burdening the fiscal situation and obstructing a growth revival,” the bank said in a report on its website (www.adb.org).
The country’s GDP growth during the current fiscal year is expected to improve slightly to 3.0 per cent on the back of recovery in the manufacturing sector, as compared to 2.0 per cent last year, the bank said in the report titled Asian Development Outlook 2010.
The ADB is a Manila-based multilateral bank and is Pakistan’s biggest multilateral development partner.
The ADB projected inflation for the 2009/10 fiscal year at 12.0 per cent, as compared to 20.8 per cent during the previous year, but it said inflation was still high and the central bank would need to regulate monetary policy to maintain price stability.
On the external side, the current account deficit backed by robust remittances is also projected to decline to 3.6 per cent of the GDP from 5.6 per cent a year earlier, the report said.
As the macroeconomic imbalances narrowed and economic fundamentals improved, the report noted that the security environment and an ongoing power crisis are burdening the fiscal situation and obstructing a growth revival.
That revival will depend on multiple factors, the report said, and stressed faster implementation of the ongoing measures in taxation and energy sector.
The tax-to-GDP ratio in 2008/09 fiscal year fell to a 10-year low of only 8.8 per cent, which the bank said, indicated “a lack of buoyancy in the tax system and calls for urgent reform in the tax policy and administration”.
A key issue is the financing of the fiscal deficit. Rapid fiscal improvements are needed to underpin recovery, sustain the public sector development programme and prevent crowding out of the private sector.
The ADB forecast that the fiscal deficit this year would be 5.2 per cent of the GDP, as compared to a government target of 5.1 per cent.
The report also emphasised the need to generate a diversified, vibrant and higher value-added export base to contain the current account deficit and improve debt profile of the country, as well as to ensure faster growth and employment generation.
Pakistanís economic prospects are predicated on successful completion of the current International Monetary Fund programme by the end of the current year, a gradual improvement in the security situation, a phased reduction in power shortages as tariffs meet cost of supply and new power plants are commissioned, sustained implementation of fiscal reforms, particularly for tax administration, a gradual economic recovery in the main trading partners, and political stability, the report said.
Reforms towards a technically and financially sustainable power sector would also help reduce the fiscal imbalances and create room for economic growth and investment, the bank said.
“Medium- and long-term growth depends on sustained political commitment to these structural tax and power reforms.”
Pakistan faces three interconnected development challenges of fiscal situation, low growth and the challenge to revive it so as to create jobs and reduce poverty. The third is to improve the competitiveness of the economy so as to expand exports, sustain growth, and avoid balance of payments crisis in the future, the report added.
With inputs from Reuters
• GDP growth forecast at 3.0 per cent in 2009/10 (July-June), against 2.0 per cent a year ago
• Inflation seen at 12.0 per cent, compared with 20.8 per cent last year
• Current account deficit expected to be 3.6 per cent of the GDP against 5.6 per cent a year earlier
• Fiscal deficit forecast at 5.2 per cent of the GDP in FY10, against government’s target of 5.1 per cent
• The tax-to-GDP ratio in 2008/09 fiscal fell to a 10-year low of only 8.8 per cent