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The year 2018 started well with some significant positive economic indicators, notably, the promising GDP growth, improved country perception, recognition of SMEs as the prime mover of country's economy and the continuity of the inflow of remittances by the Overseas Pakistanis.

The foremost challenges, however, continue to be the trade deficit, fiscal deficit, inability to sufficiently convert loans into revenue, fiscal indiscipline and poor economic governance.

Added to these challenges are the consequences emerging out of suspension of the US economic and military support and its influence on the conduct of donors such as the IMF, the World Bank (WB), Asian Development Bank - all largely supported by the US.

The World Bank has issued the forecast that economic growth of Pakistan will increase to 5.5 percent in the fiscal year 2017-18, and reach an average of 5.9 percent over the medium term on the back of continued robust domestic consumption, rising investment and a recovery in exports.

The WB report verifies that Pakistan's growth accelerated in fiscal year 2016-17 to 5.3 percent, somewhat below the government's target of 5.7 percent, as industrial sector's growth was slower than expected. Activity was strong in the areas of construction and services and there was a recovery in agriculture production with a return of normal monsoon rains.

In the first half of fiscal year 2017-18, the pattern firmed up; it was largely driven by robust domestic demand and supported by strong credit growth and projects related to the China Pakistan Economic Corridor.

When benchmarked to the region, the economic growth in South Asia slowed to an estimated 6.5 percent in 2017, marginally below the June 2017 forecast. However the region's growth prospects appear robust with household consumption expected to remain strong, exports expected to recover, and investment projected to revive with the support of policy reforms and infrastructure improvements, according to the report. Growth in the region is expected to pick up to 6.9 percent in 2018, and stabilize to around 7.2 percent over the medium-term.

In a positive development, Pakistan's exports in July-December increased by 11.24 percent to over $11 billion but these were only equal to 47.6 percent of the annual export target of $23.1 billion. In absolute terms, export receipts were up by $1.1 billion during the first six months, raising hopes about the arrest of export slide.

Overseas Pakistanis continue to support the critical foreign exchange reserves of Pakistan with remittances amounting to $9.7 billion in the first half of 2017-18, which accounts for an increase of 2.5 percent from the same period of the previous fiscal year.

Small and Medium Enterprises (SMEs) constitute the backbone of the country's economy which spurs wider employment and supports the growing middle class to position itself in the economic growth of the country. The government appears to have recognized it.

Small and Medium Enterprises Development Authority (SMEDA) is reported to be launching a new initiative to attract an investment worth Rs 8 billion to the sector, which is a positive development.

As per SMEDA plan, a 'National Business Development Programme' will be rolled out this year to facilitate over 3 million small and medium enterprises over a period of five years. As many as 3,800 training programmes will be organised under the initiative to be supported with 761 over-the-counter documents on feasibility reports, regulatory procedures, HR and technology. The programme would also arrange 913 business startup grants and 500 international certifications besides compiling 23 market research papers.

The other most significant development is improvement in foreign investor perception about Pakistan.

The Overseas Investors Chamber of Commerce and Industry (OICCI) conducts on yearly basis a 'Perception and Investment survey'. The 'Survey 2017' conducted in November 2017 among the leading 190 foreign investors who are members of OICCI reflects improved and positive sentiments of members.

OICCI is the country's oldest and most powerful business chamber whose members collectively pay about a one-third of the total tax revenues collected in Pakistan and re-invest about $2 billion annually.

It is reported that "75 percent of the survey respondents have stated that they foresee continuing growth in their business and that they plan to make further investments in Pakistan." The survey also records the key concerns impeding fast growth of FDI in the country which include negative perception of the country against the positive reality, poor rating in the World Bank's Ease of Doing Business ratings, issues with policy implementation especially on taxation, like the year on year continuation of 3-4 percent Super Tax, long delays in settling tax refunds and growing number of inter-provincial coordination issues which are manageable with good governance and frequent interaction among the key stakeholders."

"Energy shortage" identified as the second biggest challenge in the last three surveys has dropped out of the top five challenges, whilst 'Security, Law and Order' which topped the list in the last three surveys has been identified as the third biggest challenge this time." Majority of the respondents support the 'CPEC' projects, which most people believe will be a 'game changer' for Pakistan.

"The main risks to Pakistan's positive outlook are domestic, including fiscal slippages, increasing liabilities related to infrastructure projects, slippages relating to upcoming general elections and weak tax revenues that can derail fiscal consolidation efforts," warns the Global Economic Prospects report published by the World Bank this week.

Meanwhile, the current account deficit widened to 4.1 percent of GDP compared to 1.7 percent in the previous year, amid weak exports and increasing imports.

The higher trade deficit is on an already higher base, as Pakistan had closed the last fiscal year at a record $32.4 billion deficit. Pakistan's trade deficit widened to almost $18 billion during the first half of the current fiscal year 2017-18, which is one-fourth higher than the one in the previous year.

The value of goods imported exceeded the value of those exported by $17.97 billion in the July-December 2017 period, reported the Pakistan Bureau of Statistics (PBS) this week.

Excluding its short-term obligations, the central bank's net reserves are not more than $5 billion, although gross official reserves stand at $14.1 billion.

For the current fiscal year 2017-18, the federal government has a target to increase the exports to $23.1 billion, which requires a 13.2 percent growth over the last year's total exports of $20.5 billion. The government is aiming to curtail the import bill to $48.8 billion, which seems impossible.

The power sector of the country continues to suffer from poor governance. The receivables of power sector have surged to Rs 788.39 billion, according to official data of Pakistan Electric Power Company (Pepco) during July-November 2017 period.

IMF bailed Pakistan out with a $11.3 billion loan package in 2008 to stave off a balance of payments crisis. The country received a second $6.7 billion International Monetary Fund bailout package in 2013. Pakistan needs the support of the United States as it is a major shareholder of these organisations.

US-Pakistan Business-to-Business contacts and investments have the potential to continue in view of the opportunities arising out of CPEC and US' significant investments in China.

A US company visiting Lahore last week expressed its interest to invest in various economic sectors in Pakistan that is witnessing investment under China-Pakistan Economic Corridor (CPEC) projects. More may follow.

The year 2018 promises a boost in economic growth of Pakistan.

(The writer is former president of Overseas Investors Chamber of Commerce and Industry)

Copyright Business Recorder, 2018


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