Growth at risk

The good news that though the projected figures differ, all outlooks on Pakistan's economy project a 12-year high growth rate. This is a marked achievement since 2008 when Pakistan's economy started sliding from an all time high of 7.5 percent and struggled at around 2 percent for the next 4 years and started to regain in 2013.
Government figures projected growth to be 5.79 percent against its target of 6 percent set at the start of year. The World Bank and the IMF projected 5.5 percent and 5.6 percent growth, respectively. The State Bank has forecast the most optimistic outlook, saying the target is likely to be met with growth soaring to 6 percent by the end of the fiscal year.
Growth in Infrastructure, energy sector, large-scale industry, agriculture and retail industry has been the main driver of the economy. Construction industry has played a significant role in pushing up GDP with major activity in cement and steel sectors. Growth in power generation and gas supply showed improvement as well. Agriculture exceeded its growth target.
Retail and wholesale trade sector of Pakistan has come up as the most promising and sustainable sector which far exceeded the target. Retail sector of Pakistan has reached the distinction of being the most dynamic in the region driven by a growing middle class with purchasing power as being one of the highest in the region. The positive outlook has invoked the interest of many foreign investors with their footprints in Pakistan such as Hyperstar of the UAE, Metro of Germany and SPAR of Switzerland.
However, the news for 2019 is not so promising as growth outlook for the next fiscal year is extremely challenging.
Asian Development Bank (ADB) this week expressed pessimism over the economy's ability to keep up growth pace in the next fiscal year of 2019 as external imbalances are likely to contain economic expansion at 5.1 percent.
"GDP growth is expected to adjust downward in FY2019 to 5.1 percent as balance-of-payment constraints seem to outweigh improvements to supply-side factors such as better security and energy supply," stated ADB in its 'Outlook (ADO) 2018'. Inflation is projected to accelerate marginally to 4.8 percent in FY2019 reflecting increases in global oil prices and rupee depreciation against major currencies.
ADB projections enjoy the credentials of being fairly realistic. For the current fiscal year of 2018, ADB had projected 5.6 percent growth based on strong prospects for large-scale manufacturing and crop harvests for a second year in a row, buoyant domestic demand, recovery in exports, improved power supply, and favourable commodity prices.
"Addressing fiscal and external imbalances and revitalising exports are major challenges for the government now and following national elections," it warned.
ADB states that the contracting exports-to-GDP ratio to 7.2 percent in 2017 from 11.2 percent in 2007 poses a major challenge to the sustainability of external accounts. The share is far below the 28 percent average in developing Asia.
"Clearly, the circumstances that caused exports to deteriorate have undermined economic growth, beyond directly worsening the country's external position," it said and added: "Various structural weaknesses undermine Pakistan's trade performances. In particular, weak logistics and trade facilitation, including customs procedures, add to transaction costs."
ADB advised the government to consider greater exchange rate flexibility, enforcing industrial compliance with quality control and other standards, operationalising a national single window for trade, skills development, and instituting legal and institutional frameworks to support new industries, such as information and communication technology services.
They view the surge in imports, despite regulatory duties, as also a reason of widening current account deficit. But, the imports were related to machinery, metals, and vehicles related to infrastructure projects, which ADB said are imperative to reduce infrastructure deficit.
Expenditure on private consumption, providing about 80 percent of GDP, grew 8.6 percent and remained the largest contributor to growth in FY2017. Faster growth in fixed investment, at 8.3 percent, reflected larger public investment, while private investment grew only 4.1 percent, restrained by substantial infrastructure deficits, especially for electric power supply, it said.
"In the remainder of FY2018, the current account deficit should be reined in by the lagged effects of adjustments to regulatory duties, currency depreciation and credit tightening in January, and the favourable external environment for exports. However, with increased seasonal spending on infrastructure projects, the current account deficit will likely edge up a bit to equal 4.9 percent of GDP in FY2018," the bank added. "The amount of foreign financing available in the final months of FY2018 will determine any further pressure on foreign exchange reserves."
The lender said the preliminary projection for the current account deficit in FY2019 is 4.5 percent of GDP, with somewhat slower growth but continued implementation of China-Pakistan Economic Corridor projects. "Successfully financing these large investments will require the government to pursue real structural reforms."
The bank said budget deficit may be held below 5.8 percent of GDP in FY2018 on higher revenue collection and rationalisation of expenditures. Growth will stay robust, but will not improve as revenue-enhancing fiscal reforms "will temporarily brake expansion in Bangladesh, Pakistan, and Sri Lanka", it added.
On the other hand, the government has also acknowledged that 6 percent growth target will not be achieved. The growth rate has been revised downward to 5.79 percent based on the seven months' available data.
The fiscal year 2019 is indeed a year of challenges.
The incumbent government committed in its 2013 mandate to the nation that power crises will be something of the past, circular debt will never ever return, loss making entities in the public sector will be privatized or restructured, etc. Unfortunately, however, At circular debt has escalated, entities in the public sector continue to drain our economy; although substantial power plants have been commissioned power outages continue to persist. The summer of 2018 may continue to be a difficult one on account of availability and affordability of power.
Political leaders need to show responsibility by ensuring that the economic growth of the country is not compromised at the altar of political expediency.
Economy of the country belongs to its people and their welfare.
(The writer is former President of Overseas Investors Chamber of Commerce and Industry)