WB had revised GDP growth projection for Pakistan down to 4.8 percent in October 2018. International Monetary Fund (IMF) has also revised downward the GDP growth rate from 4.7 percent in April, 2018 to 4 percent in October 2018. Asian Development Bank (ADB) has revised downward GDP growth projection for Pakistan to 4.8 percent in September against the previous projections of 5.1 percent.
The WB states that in Pakistan external debt is sizable and current account deficits have deteriorated considerably. Recent currency pressures have eroded Pakistan''s foreign exchange reserves significantly - they currently amount to only around two months of imports.
There were some signs of rising inflation pressure across the region, and both India and Pakistan raised rates in 2018 to counter the effects of currency depreciation, rising energy prices, and domestic capacity constraints.
Price pressures, widening fiscal and current account deficits, or in some cases currency and financial market volatility have prompted a shift to less accommodative monetary policy in some countries (e.g., India, Mexico, Pakistan, the Philippines, Romania), maintains the report.
Pakistan''s fiscal deficit rose to 6.6 percent of GDP last year, well above the government''s target of 4.1 percent, as tax collection fell short of expectations.
Activity is slowing and financial conditions have tightened in a number of commodity importers that have experienced financial market stress or continue to face widening fiscal and current account deficits (e.g., Pakistan, the Philippines, and Romania).
Growth is projected to accelerate to 7.1 percent for South Asia in 2019. This mainly reflects strengthening domestic demand in India, as the benefits of structural reforms such as GST harmonization and bank recapitalization take effect. Elsewhere in the region, the forecast is for a moderation in activity, notably in Bangladesh and Pakistan.
Excluding India, regional growth moderated slightly in 2018. Pakistan''s GDP (factor cost) is estimated to have grown 5.8 percent in fiscal year 2017-18, with solid contributions from consumption and investment. Activity was supported by strengthening in the agricultural and industrial sectors, and a sustained acceleration in services.
The report further states that in Pakistan, the informal sector provides two-thirds of total employment but produces only about one-third of GDP. This difference points to considerably lower informal labor productivity relative to total labor productivity in Pakistan than in Brazil, in part reflecting lower educational attainment of informal workers.
Pakistan raised income taxes on non-corporate partnership firms in 2009. Pakistan''s corporate tax hike was followed by rising informality as firms switched business models and reported lower earning.
Several of the policies discussed above were not primarily implemented with informality in mind. Yet, they had the unintended consequence of raising informality: tax increases in Pakistan, decentralization of minimum wage regulation in Indonesia, and trade liberalization in Egypt, Brazil and Colombia. Other reforms did not have as large an effect on informality as expected, such as the tax reform in Georgia.
The report further states that important net rice exporters such as India, Pakistan, and Yemen implemented policy interventions that, ultimately, raised domestic rice prices more than the increase in world prices. In Pakistan, heavy summer flooding that affected one-fifth of the country''s land area and inflicted extensive damage to crops raised domestic rice prices relative to the world price over the same period.