ISLAMABAD - Pakistan has made significant progress in reducing poverty over the last decade and the economic growth is expected to reach 5.4 percent in financial year 2018 (FY18), the World Bank says in a report.

The percentage of people living below the poverty line in the country has decreased from 64.3 percent to 29.5 percent over a 12-year period, the global financial institution noted in its report ‘Pakistan Development Update’.

The Bank however warned that Pakistan’s low rates of investment and declining export competitiveness remain a concern.

“The government recently set a new national poverty line that identifies 29.5 percent of Pakistanis as poor (using the latest available data from FY14. By back casting this line, the poverty rate in FY02 would have been about 64.3 percent. This means that poverty has more than halved between FY02 and FY14,” the report stated.

It further stated that Pakistan’s economic growth in fiscal year (FY) 2016 reached 4.7 percent-the highest rate in eight years and a significant increase from the previous year’s 4.0 percent. Growth acceleration will depend on the implementation of structural reforms, such as energy and taxation and implementation of the China Pakistan Economic Corridor (CPEC). In the long term, growth will be driven by increased investment in both physical and human capital, with increased focus on better nutrition, health and education outcomes.

In the medium-term, Pakistan’s growth is expected to continue to accelerate, reaching 5 percent in FY17 and 5.4 percent in FY18. A moderate increase in investment (related to CPEC projects) is expected to contribute to an acceleration of growth, which will continue to be driven by public and private consumption. Energy reforms are expected to support higher growth in the industry and services sectors. The agriculture sector is forecast to recover from its poor performance in FY16. Subdued growth in exports and accelerated growth in imports are expected to lead to a widening of the current account deficit from 1.1 percent in FY16 to 1.7 percent in FY17. Like in previous years, this will be offset by remittance inflows so foreign exchange reserves are expected to continue to accumulate

The low and stagnant investment rate, however, continues to pose significant challenges. After strong growth in FY15 of 13 percent, investment grew by only 5.7 percent in FY16. The ratio of investment to GDP is 15.6 percent-compared with an average rate in South Asia of 34 percent between 2010 and 2015. Pakistan’s much lower rate of investment is driven by its volatile security situation, energy shortages and poor business regulatory environment, the World Bank report noted.

“FY16 saw the continuation of a longstanding decline in Pakistan’s share in global trade. This trend is a combined reflection of Pakistan’s weakening export competitiveness and soft global demand in key sectors. Food and textiles, in particular, are key contributors to Pakistan’s exports and continue to suffer from a decline in international prices and demand,” it remarked. More generally, Pakistan’s decline in competitiveness has been driven by poor trade facilitation, infrastructure gaps, inefficient logistics and a poor investment climate. Pakistan has also lagged behind its competitors in trade openness, reducing its prospects of regaining export momentum. The simple average tariff has fallen only slightly from 14.4 percent in FY13 to 13.4 percent in FY16.

The World Bank said the government continues to make progress on fiscal consolidation, reducing the consolidated fiscal deficit from 5.3 percent of GDP in FY15 to 4.6 percent in FY16. The FY17 budget implies a further fall in the fiscal deficit to 3.8 percent of GDP. Revenue growth is underpinning the falling deficit, driven in FY16 by a 20 percent increase in the Federal Board of Revenue’s (FBR) collection. Some of this collection may, however, affect the progress of other reform efforts.

The end of the IMF’s Extended Fund Facility program in September 2016 marked significant progress in achieving macroeconomic stability over the last three years. Fiscal deficits are significantly reduced, foreign reserves have returned to comfortable levels and inflation is in-check. There remains, however, a significant agenda of economic reform to be implemented. The energy sector has reduced financial losses and load shedding-particularly for industry-but investments in transmission and distribution are desperately needed. The government has also made solid progress on financial sector reforms, but will need to continue to strengthen and diversify the sector and improve its governance and transparency. Continued improvements in tax collection will also be essential for the government’s economic agenda, particularly those that widen the tax net and increase provincial revenue collection

At 43.7 percent, Pakistan has the third-highest rate of stunting in the world.3 In spite of economic growth, and unlike its regional peers, it has made no progress on nutrition indicators in recent decades. Poor nutrition exerts a heavy toll on health outcomes and economic activity-stunted children start school later, are less likely to graduate or undertake higher education and earn significantly less in adulthood. It also affects lifelong health, hindering brain development, intelligence, educability and productivity. Pakistan’s public policy discourse is starting to give more attention to nutrition in recent years, and small but growing shares of provincial and federal budgets are being diverted to addressing it.

However, a concerted effort at all levels of government is needed to exert a meaningful impact on national stunting rates. Without these structural reforms and other efforts to improve the investment climate, Pakistan’s rate of investment will remain weak and its consumption-driven growth will eventually slow down.

In addition, the 2018 election may have implications for the pace of reform implementation while ‘Brexit’ and the imminent US interest rate hike may affect the overall macroeconomic environment. In the longer-term, Pakistan’s economic and human development relies heavily on better nutrition, health and education outcomes-which would in turn lift the productivity of the workforce. Using Pakistan’s economic gains to invest in health, education and nutrition would also significantly lift wellbeing, making growth matter for all Pakistan.