Growth in Pakistan is estimated to have remained broadly stable, notwithstanding fiscal tightening, but remains significantly below the regional average, due in part to energy supply bottlenecks and security uncertainties, according to the latest World Bank report on Global Economic Prospects.
The report said Pakistan, the second largest South Asian economy, is improving and has grown broadly stable from previous fiscal year, but significant in the context of fiscal adjustment required to overcome the threat of a balance of payment crisis, notes the report. It predicts growth in the vicinity of 4 percent of GDP in the medium term. Islamabad has also reduced its fiscal deficit, the report acknowledges. In Pakistan, after declining for several years, the country's investment rate is projected to rise during 2014-16.
In South Asian regional GDP measured at market prices grew an estimated 4.7 percent in 2013, down from 5.0 percent in 2012. Growth in both years was more than 2 percentage points lower than the average growth of the preceding decade.
South Asia's sub-par growth performance in recent years can be mainly attributed to subdued growth in India, the largest regional economy, where growth fell-off sharply after a stimulus-induced cyclical rebound following the 2008-09 global financial crises. Since 2012, investment growth has slowed sharply in India amidst high inflation and weakened business confidence.
Pakistan's growth is impacted by energy supply bottlenecks. Through the first four months of 2014, gross private capital flows to South Asia have been robust, despite the start of US tapering and emerging market financial tensions in January. Pakistan issued $2 billion of international bonds in April, while Sri Lanka raised $1 billion and $500 million respectively in January and April. Stock markets in the region have risen strongly since 2013 despite some short-lived reversals in early 2014. This better performance of capital flows and equity markets may be due to reduced external vulnerability (after current account adjustment in India), expectations of improved growth performance in future and continued accommodative policies in high income countries and a search for yield.
In its report, the Bank has lowered its forecasts for developing countries, now eyeing growth at 4.8 percent this year, down from its January estimate of 5.3 percent. Signs point to strengthening in 2015 and 2016 to 5.4 and 5.5 percent, respectively. China is expected to grow by 7.6 percent this year, but this will depend on the success of rebalancing efforts. If a hard landing occurs, the reverberations across Asia would be widely felt, the Bank said.
Bad weather in the US, the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints are all contributing to a third straight year of sub 5 percent growth for the developing countries as a whole. "Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40 percent," said World Bank Group President Jim Yong Kim. "Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation."