ISLAMABAD: Pakistan's economy is expected to stabilize and gradually recovery from stagflation where as growth seems to be picking up, driven by services and manufacturing.
According to World Bank "Pakistan Country Partnership Strategy 2015-19, in the medium term and under a baseline scenario that mainly assumes compliance with the three-year extended fund facility (EFF), growth is expected to climb gradually.
The fiscal deficit (excluding grants) is projected to decline to 4.4 percent of GDP by 2017-18. The cornerstone is an expected improvement in tax revenue by about three percentage points of GDP and reduction of current expenditures by about two percentage points of GDP, mainly due to lower electricity subsidies.
Total public debt (including IMF obligations) is projected to fall to around 58 percent of GDP by 2017-18. Any delay in undertaking tax reforms, or in non-materializing non tax revenues, or in reducing power subsidies poses risks to this outlook.
Similarly, a recalibration of monetary policy and relatively stable or declining international commodity prices are expected to help reduce inflationary pressures and gradually bring average inflation down to around 7 percent by 2017-18.
Though, structural bottlenecks in agricultural production, floods or any adverse international commodity price shock pose the risk of a return to higher inflation. Strong remittances and recovery of private sector credit are also projected to support consumption.
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