Business Recorder cited Mr Rune Stroem ADBs Country Director for Pakistan as saying that Asian Development Bank has projected Pakistans gross domestic product growth rate in 2009 financial year to be 2.8% that would increase to 4% in 2010.
The GDP growth rate forecast by the ADB is not in sync with those agreed between the government of Pakistan and the International Monetary Fund team in Dubai last month for 2009 fiscal year 2.5% which will automatically have repercussions on ADB forecast of other macroeconomic indicators including domestic revenue generation.
According to the ADB report, in Pakistan during 2008 financial year, a sharp deterioration in current account and escalating inflation led to a depletion of foreign exchange reserves. This, in turn, triggered a balance of payments crisis. The immediate threat to economic stability and the servicing of international debt obligations was overcome through a stabilization program backed by the International Monetary Fund.
During 2008 financial year, the economic situation deteriorated significantly after 5 years of respectable growth that averaged around seven percent. Aggravated by unprecedented oil and food price shocks in 2008 financial year, though the economy started having problems attracting inflows and its economic fundamentals worsened.
The resulting steep drawdown of reserves led policy makers to turn to the IMF for support for its stabilization program. The report states that growth dropped to 5.8% in 2008 financial year in Pakistan. Significant factors constraining growth have been the sharp decline in the growth of private investment resulting from political uncertainty, the worsening security situation and the impact of high international oil prices and frequent power shortages.
According to the report, growth in 2009 financial year is estimated to slow to 2.8% due to the impact of the global slowdown, tight demand management policies and the power deficit year. Growth in agriculture will improve with respect to that in the last fiscal but will remain moderate on account of high input costs including electricity, fertilizers and pesticides and pest attacks.
The GDP growth is expected to improve to 4.0% in 2010 financial year. The expansion will come from greater stability in economic fundamentals, improved financial inflows resulting from gradual easing of global credit conditions that will help revive investment. The report maintains that the fiscal deficit is expected to decline in 2009 financial year, as the government removes or reduces subsidies and rationalizes development expenditure while in 2010 financial year, the fiscal deficit is projected to go down further to 3.4% of GDP as ongoing tax administration and policy reforms start to make themselves felt in greater generation of revenue and as expenditure is streamlined. The economy needs to develop infrastructure and invest in health and education. Deficit spending can be carried out judiciously and it need not be inflationary because the economy is very far from full employment.
(Sourced from Business Recorder)
