- 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.