Pakistan’s Economy grew 5.3% in FY ’17; Rupee stable despite pressures: WB

Pakistan’s GDP growth continued to increase and was 5.3 percent in FY2017 compared with the government’s estimate of 5.7 percent as industrial sector performed worse than expected.

According to a report of World Bank after a weak performance in FY2016, the agricultural sector picked up during FY2017 and grew at 3.5 percent due to better cotton, sugarcane, and maize crops. The services sector, which accounts for approximately 60 percent of the economy, grew 6.0 percent in FY2017 surpassing the target of 5.7 percent.

On the demand side, growth was again dominated by domestic consumption, which accounted for an overwhelming 92 percent of GDP in FY2017, and contributed 8.4 percentage points towards GDP growth (moderated by a negative contribution of 3.7 percent from net exports).

Strong aggregate demand and improving business sentiments were evident in private sector credit growth of 18.2 percent, expanding by Rs 748 billion in FY2017 compared to Rs 446.5 billion in FY2016. Low inflation and low interest rates also contributed to higher credit growth. An increase in foreign investment flows from China (to fund CPEC projects) has also contributed to growth. Pakistan’s external account and international reserves came under stress at the end of FY2017 because of a high and widening current account deficit. The current account deficit for FY2017 has swelled to 4 percent of GDP (USD 12.1 billion), compared to 1.7 percent of GDP in FY2016.

The key driver is a very large trade deficit, which swelled to USD 26.9 billion (8.9 percent of GDP) due to declining exports and high import growth. Imports have grown partly because of CPEC related projects. External borrowing helped keep reserves at relatively comfortable levels in FY2017, despite the large trade deficit.

The external account pressure has persisted in FY2018, but despite this pressure the Pakistan Rupee has remained stable against the USD. The current external situation can become unsustainable in absence of adequate policy response. The fiscal deficit widened significantly in FY2017. Provisional data for FY2017 shows that the fiscal deficit stood at 5.6 percent of GDP, 2.1 percentage points higher than the budgeted estimate for FY2017. Lower-than-expected revenue, falling Coalition Support Funds (recorded as non-tax revenues), and an inability of provinces to generate surpluses drove this deterioration. As a result, the public debt to GDP ratio is expected to stay close to last year’s level of around 68.6 percent.

Posted on: 2017-10-09T11:44:00+05:00