In another WB report "global economic prospects a fragile recovery", released on June 4, 2017, Pakistan GDP was projected at 5.2 percent rate in 2017 (July 1, 2016 - June 30, 2017) and to 5.5 percent in the current year, reflecting an upturn in private investment, increased energy supply, and improved security.
The Bank in its latest report "South Asia country program snapshots 2016", issued on August 3, 2017 stated that Pakistan''''s economic growth is expected to increase gradually, and the economy is projected to grow by 5 percent in fiscal year 2017 and 5.4 percent in fiscal year 2018.
Economic growth is primarily driven by public and private consumption; however some rebalancing in growth components is expected due to rise in investments. This rise is primarily driven by projects under China Pakistan Economic Corridor (CPEC) and public investment. These projects are expected to accelerate growth in the domestic construction industry.
The report states that weak transmission and distribution systems are likely to be an increasing impediment to improved electricity supply. In recent years, the capacity constraints of Pakistan''''s power transmission and distribution networks have become more visible.
An expansion of Pakistan''''s generation capacity will require commensurate upgrades to transmission and distribution networks. There is a substantial funding gap of $ 8.2 billion for 2016-2020. The circular debt still hobbles the power sector. In June/July 2013, the government cleared nearly the entire stock of circular debt of roughly $4.8 billion, but it has re-emerged because the underlying issues were not addressed. Aided by low oil prices, which it has not passed on in full to consumers, the government has been able to contain the arrears so that as of June 2016 they stood at about $3.1 billion.
The report states the present shortfall in gas supply is estimated at around 2 billion cubic feet per day (bcfd) and is expected to expand rapidly in the coming years. Projections of future gas demand indicate a growth rate ranging from 2.3 to 5.0 percent per annum for low and high scenarios, respectively. On the other hand, domestic gas production is projected to decline continuously from about 4 bcfd in 2014 to 3.1 bcfd in 2020 and 1.5 bcfd in 2030. Even if the gas demand grows at the low rate of 2.3 percent p.a. the demand-supply gap will reach 4 bcfd in 2020 and 7 bcfd in 2030.
The CPEC also targets to complete infrastructure projects which will substantially increase domestic electricity generation. The better availability of electricity will enhance growth in industry and services sector. The industrial sector is also expected to benefit from capacity enhancement in cement, and steel industry which is expected to come online in next two fiscal years.
The WB report further states that the external current account is expected to widen during fiscal year 2017 and fiscal year 2018 compared to fiscal year 2016. The key contributor to this decline is widening of the trade deficit due to moderate growth in exports and rapid growth in CPEC related imports. However continuous growth in remittances and financial flows for CPEC projects will help in financing the current account deficit.
The fiscal deficit is projected to be 4.2 percent in fiscal year 2017 and 4.0 percent in fiscal year 2018. This improvement in fiscal accounts assumes that the government will persist with the path of fiscal consolidation through revenue mobilization efforts and expenditure rationalization. Inflation will increase from 2.9 percent in fiscal year 2016 to 4.6 percent in fiscal year 2017 and 5 percent in fiscal year 2018.
The gradual growth trend is underpinned by investment flows of CPEC and increase in public investment expenditure. However a delay in the completion of CPEC projects and inability of government to mobilize revenues and rationalize expenditures will affect investment and hurt economic growth during projection period. Pakistan''''s external and fiscal accounts along with inflation continue to benefit from low global oil prices; however a sudden upward shock to these prices can disrupt this stability. Remittances growth is projected to be moderate compared to their past growth; however a further slowdown in public spending in GCC economies could affect remittances growth negatively and widen the current account deficit.
Despite its tremendous potential to spur economic growth and create jobs, the private sector in Pakistan continues to face a tough investment climate as reflected by consistent deterioration in the country''''s Doing Business (DB) rankings. Pakistan''''s DB ranking dropped steadily from 76 of 181 economies in DB2009 to 138 of 189 economies in DB2016, said the WB report.
Additionally, the quality of business regulation beyond DB indicators and the absence of well located and well-serviced industrial land both for domestic and foreign investors are considered key impediments to private investment and job creation in Pakistan.
Businesses have to deal with multitude of regulations, approvals and inspections to start and operate. Regulatory interface with the private sector is uncoordinated and non-transparent resulting in investment uncertainty and compliance delays. Special Economic Zones are also facing similar challenges. A degree of variation in business regulation especially at sector levels is also noted across provinces. The challenging business environment is particularly impeding SME start-ups, operations and exit.
SMEs account for 90 percent of business establishments in Pakistan contributing an estimated 30 percent of GDP and employing 78 percent of the non-agricultural labor force. Given the critical role of SMEs in job creation, it is important to ease business regulations and procedures across a wide range of areas.
The efforts needed to improve the quality of the business environment will have to be institutionalized across three critical dimensions: (i) the respective roles of federal versus provincial authorities; (ii) the importance of a suitable and structured public private dialogue for understanding the significance of the reforms; and (iii) the mechanism for monitoring and evaluating indicator based targeted reform actions. Ultimately, high quality conditions for doing business depend on the role of government not just as an effective "regulator" but also as a "facilitator" of the private sector.
At the same time, security constraints continue to weigh on the country''''s prospects to accelerate economic growth and human development. The WB has estimated the economic costs of the security situation at around 2 percent of annual GDP.
Delay in the announcement of 9th NFC Award remains a concern. The five-year constitutional term of the 7th NFC Award expired on June 30, 2015 but the existing award was extended by the Government for "another year or till conclusion of the next award, whichever is earlier". There is increasing and legitimate demand from all the provinces to constitute discussion on a new award. Timely initiation of discussion and reaching a consensus on a new award is essential for creating an environment of confidence and trust between different units of the federation, maintained the report.
Copyright Business Recorder, 2017