The Asian Development Bank predicts lower growth rate and higher inflation during the current financial year. According to the ADB prediction, The Pakistani economy will grow at the rate of 2.8% and inflation will remain high at 12%. These figures paint the gloomy look of Pakistani economy. It’s not good news for economic mangers of PTI government who are optimistic about a fast recovery.
Pakistani economic growth rate of 2.8% will be lowest in South Asia and inflation of 12% will be highest among the 08 South Asian countries. Earlier, the ADB had projected a 3.6% growth rate for the current fiscal year. The 12% projections were far higher than the April 2019 forecast of 7% inflation for this fiscal year by the ADB.
ADB- in its latest projection report has cut the growth rate of Pakistani economy. But it has increased the projection for inflation. The ADB’s report showed deterioration in real economic growth rate and inflation, besides pointing out challenges posed by the high fiscal deficit and growing public debt.
At 2.8% growth rate, Pakistan’s economy will be the slowest growing economy in a bloc of eight South Asian nations. Like the last fiscal year, Bangladesh’s economy will be fastest-growing at a rate of 8%, followed by India that is projected to grow at 7.2% rate and Maldives and Nepal at 6.3%. Even war-torn Afghanistan is projected to grow at a 3.5% rate in this fiscal year. Overall, South Asia’s growth momentum has softened and growth forecasts are lowered to 6.2% for 2019 and 6.7% for 2020.
The ADB said fiscal adjustments are expected in this fiscal year that will further suppress domestic demand, and demand contraction will keep growth in manufacturing subdued.
However, agriculture is expected to recover from weather-induced contraction this year, with major incentives in the government’s agriculture support package included in the budget for FY2020.
The ADB said the budget deficit in this fiscal year is expected to equal 7.2% of GDP—still large but 1.7 percentage point lower than the last fiscal year. The financing of the deficit is expected to come mostly from external and non-bank sources.
Resource allocation indicates a shift toward external borrowing, with net external financing estimated at Rs1.8 trillion, or 4.2% of GDP. Financing from nonbank sources is projected at Rs833 billion, or 1.9% of the GDP.
The ADB said the economic growth rate slipped to 3.3% in the last fiscal year due to lower investment amid policy uncertainty and persistent macroeconomic imbalances. In the last fiscal year, contraction in gross fixed investment trimmed growth by 1.3 percentage points, mostly reflecting significantly reduced public investment as the government cut development spending and the near completion of energy and transport projects, including those initiated under the China-Pakistan Economic Corridor.
The ADB report also pointed out that PTI government is going to increase the gas and electricity tariffs this year. The PTI government has already increased the tariffs twice. It will add more problems for the people already suffering from high inflation and price hike.
The ADB report said currency depreciation in a few economies—especially Georgia, Kazakhstan, and Pakistan—have raised prices for imported food directly and further raised them indirectly through higher prices for imported fuel, fertilizer, and animal feed. Due to low growth coupled with the shrinking purchasing power of the inflation, unemployment, and crime rates have significantly gone up.
With the further narrowing of the trade deficit and a continued positive trend in workers’ remittances, the current account deficit is projected to narrow further to 2.8% of GDP in FY2020 -0.2% lower than the earlier ADB projections but higher than the government estimates.
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