The UN in its latest report "World Economic Situation and Prospects 2019" states that to promote more sustainable medium-term growth, policymakers need to encourage much-needed infrastructure investment to alleviate chronic energy shortages while addressing external imbalances, particularly by promoting export growth.
The macroeconomic imbalances and financial fragilities pose significant risks of a further slowdown, which emphasises the need for policy actions. It further states that Pakistan, entering an IMF programme by 2019 would necessitate a sharp fiscal consolidation. In fact, rising expenditures and high debt repayment obligations have maintained a relatively high fiscal deficit, about 4.8 per cent of GDP.
In many developing countries, rising public debt and government interest burdens represent a growing source of risk to financial stability. In 2018, rising fiscal sustainability concerns prompted several governments including Argentina, Barbados, Pakistan, and Sri Lanka to seek financial assistance from the IMF.
There are some economies, including Bangladesh, Bhutan and India, where economic conditions are largely positive, with GDP growth projected to remain robust in the near term. In contrast, the outlook in the Islamic Republic of Iran and Pakistan has visibly deteriorated. Consequently, regional GDP growth slowed down markedly in 2018.
The economic outlook in Pakistan is challenging and it encompasses significant downside risks. On the one hand, economic activity continues to be underpinned by robust private consumption, improvements in energy supply, and infrastructure initiatives of the China-Pakistan Economic Corridor. On the other, Pakistan's economy is facing severe balance of payment difficulties amid large twin fiscal and current account deficits, a visible decline in international reserves and mounting pressures on the domestic currency.
The level of public debt is also high - close to 70 percent of GDP - with rising sustainability concerns. In fact, the government is currently negotiating for official assistance from the IMF to address macroeconomic and fiscal challenges for the second time in the last five years.
This highlights some long-standing challenges for Pakistan's economy. Most domestic currencies across the region depreciated throughout 2018, while the current account deficits continued to rise in several countries, including Bangladesh, India and Pakistan.
During the first eight months of 2018, Pakistan's central bank raised its policy interest rates by 275 basis points to 8.5 per cent, and expectations are that the tightening will continue further in 2019. Despite this tightening, the significant depreciation of the domestic currency has increased consumer price inflation.
Overall, strengthening fiscal accounts remains a major challenge for the region, amid a low level of tax revenues, rigid public expenditures and persistent structural deficits. Improved tax revenues are a critical aspect in building fiscal buffers and in strengthening the capacity to implement countercyclical and redistributive policies.
The report is a joint product of the United Nations Department of Economic and Social Affairs (UN/DESA), the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions (Economic Commission for Africa (ECA), Economic Commission for Europe (ECE), Economic Commission for Latin America and the Caribbean (ECLAC), Economic and Social Commission for Asia and the Pacific (ESCAP) and Economic and Social Commission for Western Asia (ESCWA)). The United Nations World Tourism Organization (UNWTO) also contributed to the report.