ADB predicts Pakistan's economic growth to go down to 3.9pc in 2019
The ADB report mentioned inflation is predicted to rise sharply to common 7.5% in FY2019
(Dunya News) – Following a pronounced widening of the country’s balance of payments deficit in 2018, the Asian Development Bank (ADB) has forecast Pakistan’s economic growth to go down to 3.9 percent in fiscal year 2019.
In its report titled “Asian Development Outlook (ADO) 2019,” the bank said Pakistan’s GDP growth is forecast to drop to 3.9% in FY2019 as “macroeconomic challenges continue and despite steps to tighten fiscal and monetary policies to rein in high and unsustainable twin deficits.”
The report said, “Until macroeconomic imbalances are alleviated, the outlook is for slower growth, higher inflation, pressure on the currency, and heavy external financing needed to maintain even a minimal cushion of foreign exchange reserves. Recurrent crises in the balance of payments require that firms become more export competitive.”
The ADB report mentioned inflation is predicted to rise sharply to common 7.5% in FY2019, pushed up by continued heavy authorities borrowing from the central financial institution, hikes to home gasoline and electrical energy tariffs, additional will increase in regulatory duties on luxurious imports, and the lagged affect of forex depreciation by greater than 10.7% since July 2018.
To meet its large financing needs, the government is discussing a macroeconomic stabilization program with the IMF in addition to arranging financial assistance and oil credit facilities from bilateral sources.
Continued fiscal consolidation in fiscal year 2020 will keep growth subdued at 3.6 percent. The supply side is already showing signs of slowdown. Agriculture is expected to under-perform the 3.8 percent growth target for fiscal year 2019 after water shortages struck as wet season crops were being sown.
Imports fell by 0.8 percent in the first 7 months of fiscal year 2019 from the same period of fiscal year 2018, with imports other than oil 5.7 percent lower because of slower domestic economic activity, currency depreciation, and an increase in import duties for nonessential items.
Remittances are expected to revive—having already risen by 10 percent in the first 7 months of fiscal year 2019 over the same period of fiscal year 2018—as the Pakistan rupee depreciate further, economic activity in the Middle-eastern oil exporting countries (major destination of Pakistani migrants) holds broadly steady, and the government takes measures to facilitate remittances through official channels.
The government’s diaspora bonds—issued in January 2019 with terms of 3 and 5 years and an attractive return of over 6 percent—aim to tap resources from overseas Pakistanis.
Inflows that do not incur debt, such as foreign direct investment, are expected to be lower in fiscal year 2019 as several CPEC energy projects are near completion.
Financing a high current account deficit in fiscal year 2019 will require substantial borrowing, as in the first 7 months of the year, and use much of the bilateral lending support announced in the early months of 2019 to finance the deficit in the balance of payments. Foreign exchange reserves, depleted to $8.1 billion in February 2019, will likely remain stressed at the end of fiscal year 2019.
The report further states that Pakistan ranks 107 of 140 economies on the Global Competitiveness Index 2018. It is classified as inhabiting the first stage of development among 35 factor-driven economies— that is, economies heavily reliant on unskilled labor and natural resources.
The high cost of doing business is a key factor limiting firms’ ability to compete. Access to affordable capital is constrained by a shallow and underdeveloped capital market.
Manufacturing firms face high corporate tax rates, taxes on dividends and retained earnings, cascading taxes levied on inter corporate dividends, and a super tax levied on retained reserves.
The effective corporate tax rate of up to 49% is significantly higher than taxes on international competitors. High custom duties on machinery imports raise the cost of investment, and high tariffs on raw materials and intermediate inputs erode the price competitiveness of both exporters and domestic industries facing stiff competition from imports. High tariffs and undependable electric power add to production costs.
Earlier, Pakistan Bureau of Statistics (PBS) data showed that Inflation in Pakistan rose to its highest level for half a decade in March 2019.
The data further showed that data showed that CPI inflation General increased by 9.41% on year-on-year basis in March, 2019 as compared to an increase of 8.2% in the previous month and 3.2% in March 2018.
On month-on-month basis, it increased by 1.4% in March 2019 as compared to an increase of 0.6% in the previous month and an increase of 0.3% in corresponding month i.e. March 2018.
Month-on-month Top few commodities which varied from previous month i.e. February 2019 are given below:
Food Increased: Onions (39.28%), Fresh Vegetables (24.43%), Tomatoes (18.83%), Chicken (15.88%), Pulse Moong (12.68%), Fresh Fruits (12.52%), Gur (2.88%), Sugar (2.74%), Beans (1.23%), Fish (1.18%), Spices (0.91%), Pulse Gram (0.60%), Vegetable Ghee (0.58%), Rice (0.41%), Pulse Masoor (0.31%), Bakery & Confectionary (0.31%), Cigarettes (0.27%), Wheat Flour (0.20%), Cooking Oil (0.18%), Tea (0.17%), Milk Fresh (0.17%) and Wheat (0.16%).
Decreased: Eggs (6.32%), Potatoes (5.00%), Betel Leaves & Nuts (2.09%), Gram Whole (0.70%) and Wheat Product (0.41%).
Non-food Increased: Text Book (3.95%), Cotton Cloths (2.30%), Medical Equipments (2.24%), Motor Fuel (1.54%), Kerosene Oil (1.51%), Household Servant (1.35%), Plastic Products (1.32%), Stationery (1.18%), Drugs and Medicines (1.16%), Construction Wage Rates (1.16%), Education (1.00%), Transport Services (0.97%), Personal Equipments (0.96%), Construction Input Items (0.79%) and Motor Vehicle (0.67%).
Decreased: Woollen Cloth (0.63%).
Year-on-Year: Top few commodities which varied from previous year i.e. March, 2018 are given below:-
Food Increased: Tomatoes (315.30%), Fresh Vegetables (28.18%), Pulse Moong (22.69%), Sugar (18.20%), Spices (17.66%), Gur (17.18%), Onions (15.85%), Honey (15.23%), Cigarettes (14.73%), Meat (13.33%), Dry Fruits (11.75%), Beans (10.09%), Pulse Gram (9.87%), Eggs(8.30%), Sweet Meat (8.28%), Milk Powder (8.07%), Fish (8.02%), Tea (7.87%), Condiments(7.43% ), Vegetable Ghee (7.18%) and Rice (5.11%).
Decreased: Betel Leaves & Nuts (37.02%), Potatoes (15.57%), Gram Whole (5.15%), Fresh Fruits (1.38%) and Chicken (1.20%).
Non-food Increased: Gas (85.31%), Newspapers (15.98%), Transport Services (15.35%), Cosmetics (13.56%), Personal Equipment (13.25%), Stationery (13.14%), Motor Fuel (12.99%), Utensils (12.64%), Plastic Products (12.21%), Construction Input Items (11.72%), Motor Vehicles (11.08%), Washing Soap & Detergents (10.88%), Motor Vehicle accessories (10.29%), Textbooks (10.06%), Household Servant (9.50%), Construction Wage Rates (9.43%), Electricity (8.48%) , House Rent (8.20%), Kerosene Oil (7.19%) and Education (6.12%)
PETROL PRICE HIKE
The report by PBS was released a day after the PTI-led government hiked fuel prices by up to 6.45 percent, as the country continues to face widening fiscal and current account deficits amid spiralling inflation.
On Monday, countrywide fuel prices increased to Rs98.89 ($0.70) per litre, with diesel prices at Rs117.43 ($0.83), a government notification said, hitting nine-month highs.
Earlier on Friday, the State Bank of Pakistan (SBP) increased the country’s interest rates by 50 basis points to 10.75 percent, saying that the economy was uner considerable strain.
"The current account deficit remains high, fiscal consolidation is slower than anticipated and core inflation continues to rise," said a statement accompanying the announcement.
As a result, the central bank has pared back its expected annual GDP growth rate projection from around 6 percent to 3.5 percent.
