Appreciating the strong willed implementation of
Economic reforms by the present Government, the Asian Development Bank
has estimated that Pakistan Economy could grow by 4.5 per cent during
fiscal year 2002-2003 and by 5 per cent next year if it continued to
pursue the present sound macroeconomic policies.
The ADB is, however, not so optimistic about
achieving of the budgetary deficit target of 4.4 per cent and the
containment of inflation rate as estimated in the budget.
In its "Pakistan Update 2001-2002" released
on Friday last the ADB has also identified certain areas which need
close attention on a long-term basis. One, it is not clear, it says,
whether additional government expenditures can provide sufficient boost
to the economy given well known impediments to investments. Two,
Pakistan's current economic slowdown is not simply cyclical in nature
but is also manifestation of structural problems which include a huge
overhang of external and domestic debt. Three, higher fiscal and current
account deficits, resulting from additional spending, will not be viewed
favourably by the donor community and may also affect investor
confidence. Four, governments' failures in the past to efficiently
identify, prioritiese, plan and execute development projects cast doubts
on the efficacy of government expenditure in generating growth. The only
way to increase expenditure, without worsening fiscal and current
account balance, is through additional resource generation.
The ADB report noted that the Pakistan economy
demonstrated great resilience during financial year 2002 in the face of
external shocks generated by the post-11 September 2001 developments,
tensions with India, global recession, and continuing drought.
Macroeconomic fundamentals improved further, and the real GDP growth
rate increased to 3.6 per cent from 2.5 per cent in financial year 2001,
the annual inflation rate declined to 2.8 per cent from 4.4 per cent,
and the current account of the balance of payments posted an
unprecedented large surplus.
The increase in GDP growth in financial year 2002 was
mainly due to the agriculture sector, which despite continued drought,
performed better than the previous year. Growth of value-added in the
sector is estimated at 1.4 per cent in contrast with a contraction of
2.6 in the previous year. Growth of the industry sector was slightly
lower (2.8 per cent) than in the previous year (3.1 per cent), mainly
because of a sharp deceleration in the large-scale manufacturing sector.
The large-scale manufacturing sector was hurt the most by the
post-September 2001 developments and the global recession. Its growth
declined to 4.0 per cent from 8.6 percent in financial year 2001.
However, production in the latest three-month period (March-May 2002),
shows a significant turnaround in the large-scale manufacturing sector,
which is likely to continue in financial year 2003. The growth of the
services sector, which contributes 50 per cent to GDP, also improved
somewhat during financial year 2002.
The improvement in the current of the balance of
payments was broad-based, as all the three components of the current
account showed significant improvements. The trade balance, through
still negative, improved sharply in financial year 2002 due to a larger
decline in imports than in exports and faster realization of export
bills prompted by the sustained appreciation of the Rupee. There was a
substantial reduction of $515 million (or 18 per cent) in the services
account largely due to receipts from the USA against logistic support
provided for war in the Afghanistan and smaller interest payments
resulting from falling stock of foreign private loans and FE45 deposits.
The largest improvement was seen in current transfers, the third
component of the current account, as net transfers increased to $5.3
billion in the first 11 months of the year compared with $4.2 billion in
the corresponding period of FY 2001. Sharp increases of 112 per cent and
76 per cent in remittances and official grants, respectively,
contributed to improvement in current transfers.
Given their assessment for the future the Bank
experts said that the growth performance of the economy is expected to
improve further in FY 2003 for the following reasons. One, the greater
availability of water after the recent rains has improved prospects of
the agriculture sector, as well as for electricity generation. Two, the
upturn in the large-scale manufacturing sector observed in the March-May
2002 period, is likely to continue during the current year. Three, the
sharp increase in remittances is likely to boost construction activity.
The sound macroeconomic fundamentals achieved over the last 2-3 years,
will also help, and the economy should be able to achieve the growth
target of 4.5 per cent in FY 2003. However, inflation, which pocked up
towards the end of FY 2002, is expected to rise in FY 2003.
The upturn in exports and imports in the fourth
quarter of FY 2002 is likely to be sustained in FY 2003. Exports should
benefit from the revival of the global economy and greater access to the
European Union markets, and with the anticipated revival of the domestic
economy and higher oil prices, imports will also increase. Remittances
will be sustained at the high level attained in FY 2002.
The medium-term prospects for the Pakistan economy
have improved due to reprofiling of foreign bilateral debt, improvement
of relations with the G-7 countries, greater access to the European
Union markets, and modernization of textile industry underway for the
last couple of years. If the government continues to pursue sound
macroeconomic policies and implement the planned governance reforms, it
should be possible to achieve the growth target of 5 per cent, set for
FY 2004 in the medium-term macroeconomic framework under the Poverty
Reduction and Growth Facility.