KARACHI: The World Bank (WB) has projected Pakistan’s economy will grow by 4.5 percent in Fiscal Year 2015-16 (FY16) and then further to 4.8 percent in FY17 supported by strong growth in industry and services, however, the country needs to implement energy and taxation reforms and increase investment.
The WB, in its latest economic outlook report stated that macroeconomic outlook of Pakistan for the next two years projects steady growth recovery-cum-low inflation, supported by fiscal consolidation and an improving external position.
Meanwhile, investment is expected to increase to 15.4 percent of Gross Domestic Product (GDP) by FY17 on account of operationalisation of China Pakistan Economic Corridor (CPEC) related projects, added the report.
Though, WB realizes that a mild recovery is underway, economic stability has largely been restored and key external risks are lower in Pakistan, but, some challenges may upset the projected growth as the slowdown in China, if protracted, could have adverse effects on investment and trade, and Pakistan may not have the ability to absorb external shocks in the absence of strong buffers.
Furthermore, WB mentioned in the report that realization of tax revenue targets largely hinges on steady implementation of tax reform agenda. Fiscal consolidation may also be negatively affected by delayed implementation of the government’s privatisation agenda.
Moreover, for the economy to accelerate in the long run, key growth constraints like electricity shortages, cumbersome business climate, complex trade regime, low access to finance and security situation need to be addressed.
According to the report inflation is projected to stay low in view of low commodity prices, exchange rate stability and a prudent fiscal policy. The Pakistan’s current account deficit is projected by the WB to increase slightly to 1.0 percent of GDP by FY17 but will remain manageable.
So far, remittances originating from Gulf countries have not been affected by the decline in oil price and are expected to stay robust in the near term. Exports are projected to contract in the first year owing to tapered global demand and then grow marginally the following year. Imports, however, are projected to post moderate growth due to CPEC-related investments and higher domestic demand. Fiscal consolidation is projected to continue over the medium term based on strong tax revenue efforts as well as gradual phasing-out of energy-related subsidies and of contingent liabilities on loss making state-owned enterprises.
Resultantly, the fiscal deficit is expected to decline to 3.5 percent of GDP by FY17. The reduced need for deficit financing should facilitate provision of bank credit to the private sector, leading to increased economic activity, the world financial institution concluded.
Widespread corruption and weak accountability have been long-standing problems, but there have been some improvements, especially in transparency and citizens’ access to recourse for maladministration. Such improvements include the adoption of strong legislation on Right to Information in some provinces (KP and Punjab), the publication of increased budgetary information, and the growing role of ombudsman institutions – at both the federal and provincial levels – in resolving citizens’ complaints of maladministration.
In terms of outcomes, there are some signs that petty corruption might be declining. The most recent Global Barometer Survey by Transparency International (2013) reports that 34 percent of citizens had paid a bribe in the past year – compared to 49 percent in the 2011 survey. Most survey respondents in Pakistan identified the police and the public administration as the most corruption affected institutions, followed by political parties.
Perceptions of corruption in public services such as education, health care, and the judicial system were considerably lower.