Pakistan has significantly benefited from soft oil prices, which account for almost a third of its imports. But the country could not benefit much from this unprecedented windfall and did not manage to achieve the economic growth, as the opportunity offered. For the last three years, the economic growth is hovering around 4 percent.
The World Bank, in its report issued last Thursday, projected Pakistan’s GDP growth at 4.5 percent for the current fiscal year against government’s target of 5.5 percent. The country’s growth rate is expected to rise to 4.8 percent in 2016/17. The growth up to 2019 is also projected to be modest. These projections are quite modest as compared to ambitious figures of GDP presented in the Budget Strategy Paper 2016 by the Ministry of Finance just a few days back.
“The growth outlook for FY 16 remains modest with growth expected to increase slightly to 4.5 percent of GDP in FY 16 from 4.2 percent in FY 15, driven by large scale manufacturing growth of 4.0-4.5 percent and services growth of over 5 percent,” said the bank in its report titled “Pakistani’s development update: from stability to prosperity”.
Much of the country’s economic growth is largely on account of external factors such as low oil prices and strong remittances while private and public investments continue to remain low. Remittances of $9.7 billion in the first half more than compensated for the trade deficit, whereas oil prices effected a 9.1 percent fall in the import bill.
The World Bank report said that Pakistan’s expected growth rate remains well below the growth rates of the country’s South Asia peers. “A further growth revival will remain contingent on the government,” it said.
Pakistan’s economic recovery can be best rated as stable and modest. It has not yet embarked on the path of prosperity as it should have been the case in view of many positive and favourable factors which could have made it happen. The country’s economy continues to suffer from inherent weaknesses. Exports fell by 11.1 percent in the first half largely due to softer global demands, domestic logistics bottlenecks, a lack of government’s export strategy and a laid-back attitude of the public functionaries in Pakistan and the commercial counsellors positioned aboard to facilitate trade.
Country’s agriculture growth remains sluggish and is expected to slow down to 2-2.5 percent for 2015-16 as compared to 2.9 percent in 2014-15. Although the services and large scale manufacturing have recorded growth and are expected to grow by 5 percent and 4-4.5 percent in the current fiscal year, respectively, the small and medium-scale enterprises’ (SMEs) growth is sluggish.
Pakistan’s urban economy, which accounts for almost half of the GDP, sharply fell 3.0 percent over the last six years due to decline in the industrial growth. The growth rate recorded in the period 2002 to 2008 was 6.5 percent as against 3.5 percent in 2014-15.
Foreign Direct Investment (FDI) in the country continues to be sluggish. Except for some FDI from China on account of the Economic Corridor, FDI from other countries, such as the US and the EU states is drying out and there are no positive signs of its coming back.
Loss-making enterprises in the public sector continue to cause a dent on the national exchequer while the privatisation plan of these units has been rolled back with no alternate strategy to plug the losses.
Pakistan today is positioned much better than it was three years ago. The law and order situation in the country has significantly improved. The global perception of the country is now much better. The local and foreign investors look at Pakistan with more confidence. The China-Pakistan Economic Corridor has added new dimensions to Pakistan’s strategic and economic alignment with China. The global political and economic dynamics are undergoing a dramatic change and Pakistan is positioned well to cash in on these changes in its favour.
The Central Asia Regional Economic Co-operation (CAREC) programme, under ADP, has undertaken $1 billion projects in Pakistan since its inception mainly in road infrastructure. On the sidelines of the 49th annual meeting of the ADP last week, ADP’s Director General stated that the CAREC initiative is meant to construct economic corridors and $22 billion was meant only for transport and road sector. Under the initiative of CAREC, Central Asia is on the move. This region is witnessing the rebuilding of ancient transport and trade routes that once connected Euro-Asia. Rich in natural resources the CAREC countries are embarking on a new path of prosperity. Its success will be the defining feature for its leading role in the changing economic and politic dynamics of the world. There is no country better positioned in the region to benefit from this initiative of ADP than Pakistan considering its lead in the region with the China-Pakistan Economic Corridor. This corridor will be the only state of art and open land route connecting South Asia to Central Asia. It is in Pakistan’s interest to open the corridor for investment by other sources in addition to that from China.
Investors’ confidence has improved: The Overseas Chamber of Commerce and Industry (OICCI), a business chamber of foreign and multinational companies, conducts each year a Business Confidence Index (BCI) survey, which is a practice for the last 12 years. Report based on surveys and is sent each year to all the policymakers and stakeholders. A recent BCI survey expressed bullishness and confidence over the growth and sustainability of Pakistan’s economy with a note of caution about poor infrastructure, lack of policy implementation, delays in tax refunds, cumbersome procedures and a lack of accountability and slow decision-making processes. The survey identified that real estate and financial services performed the best followed by fast moving consumer goods sector. The survey, with feedback from all over the country and involving nearly 200 foreign and multinational companies, is considered the most comprehensive and reliable document reflecting the business strategies and mindset of these valuable investors.
Pakistan has made progress in restoring macroeconomic stability but much has to be done to put it on a solid economic growth footing. We need to get on this path. There are a number of positive economic indicators such as reduced petroleum product prices, low single-digit inflation, low borrowing rates, opportunities offered by the China-Pakistan Economic Corridor, the return of Iran to the international community and ongoing energy and infrastructure projects and a much improved law and order situation has the potential to kick-start this process. The government needs to put its act together.
(The writer is former President Overseas investors Chamber of Commerce and Industry)