ISLAMABAD - The World Bank has observed that Pakistan’s weak economic growth is due to worsening security condition accompanied by greater political uncertainty and a breakdown in policy implementation. It predicted country’s economic growth at 3.9 per cent during the year 2012.
The World Bank in its report titled “Global Economic Prospect 2012” has forecast that the world economy this year is set to grow by just 2.5 per cent, weighed down by ripple effects from the 2008 financial slowdown. The sovereign debt crisis in Europe, which took a turn for the worse in August 2011, coincides with slowing growth in several major developing countries (Brazil, India and, to a lesser extent, Russia, South Africa and Turkey), mainly reflecting policy tightening begun in late 2010 and early 2011 to combat rising inflationary pressures from overly-fast growth.
According to the report, GDP growth rate in Pakistan would be 3.9 per cent during the year 2012 that was 2.4 per cent in 2011. Pakistan’s weak growth outturns are also tied to the worsening security situation, accompanied by greater political uncertainty and a breakdown in policy implementation. Infrastructure bottlenecks, including disruptions in power delivery, remain widespread. However, a notable bright spot has been the increased exports, evident particularly in the first half of 2011, led by textiles that surged 39 per cent in the first half of the year.
However, like India, Pakistan’s export volume growth saw a sharp fall-off in October. Indeed, Pakistan’s export volumes fell to a -46 per cent rate in the three months ending October (3m/3m, at seasonally adjusted annualised rates). Along with an upswing in worker remittances inflows, robust exports have supported Pakistan’s external positions and contributed to an improvement in the current account from a deficit of 0.9 per cent of GDP in 2010 to a surplus of close to 0.5 per cent of GDP in the 2011 calendar year.
Industrial production surged to grow at a robust 32.1 per cent annualised pace during the three months ending in October (3m/3m, at seasonally adjusted annualised rates), after falling at 9.1 and 10.1 per cent rates during the first and second quarters, respectively. Part of the strengthening in growth reflects base effects due to the widespread flooding that had hampered activity in the second half of 2010. Indeed, because the floods occurred in July and August 2010, GDP growth on a fiscal year basis (ending June-2011) slowed to 2.4 per cent from 4.1 per cent of the fiscal year 2009-2010.
Worker remittances remain a critical source of foreign exchange in South Asia. Remittance inflows to Pakistan rose by an estimated 25 per cent in 2011, partly in response to the widespread flooding in the second half of 2010. When measured in local currency terms, given the appreciation of the dollar, remittances inflows to the region grew by a more vibrant 13 per cent in 2011 (median rate). Adjusting for inflation, worker remittances inflows to the region grew by a less robust 5.8 per cent (median rate) in local currency terms.
According to the report, countries heavily reliant on foreign assistance, such as Afghanistan, Nepal and Pakistan, could be hit hard if fiscal consolidation in high-income countries were to result in cuts to overseas development assistance. Given the lack of fiscal space in South Asia, inflationary pressures and consequent limited room for monetary policy easing, fiscal consolidation through greater revenue mobilisation (particularly in Pakistan, Sri Lanka, Bangladesh, and Nepal) and expenditure rationalisation (especially in India) could play a key role in helping to protect critical social programmes. Governments should also look into further improving the targeting of its safety nets and capacity to respond to a crisis to improve efficiency of social safety net programmes.