Urgent structural reforms can revive Pakistan’s economic growth: World Bank

ISLAMABAD - The World Bank (WB) in its recent report has said that structural reforms can revive Pakistan's economic growth, which is expected to reach 4 per cent in Financial Year 2021.

"As macroeconomic conditions improve, and a package of structural reforms in fiscal management and competitiveness is implemented, growth is expected to recover to 4.0 per cent in FY21," said latest edition of the 'South Asia Economic Focus, Exports Wanted,'

The report on twice-a-year regional economic update predicted that Pakistan’s economic growth will decelerate to 3.4 per cent in FY19 and 2.7 per cent in FY20, as fiscal and monetary policies, are tightened to address macroeconomic imbalances.

It said domestic demand is expected to contract while at the same time export growth will be gradual.

On the supply side, services growth, which has been leading growth in the past, is projected to decline to 4.4 per cent in FY19 compared to 6.4 per cent in FY18. The agriculture and industrial sectors will also grow significantly lower in FY19 and FY20.

Growth is expected to recover to 4% in FY21 as structural reforms take effect and macroeconomic conditions improve, the report added.

Remittances flows are likely to support the current account balance next year. A more stable external environment will also support a pickup in economic activity starting from FY21.

The trade deficit is projected to remain elevated during FY19, but to narrow in FY20 and FY21 as the impacts of currency depreciation, domestic demand compression, and other regulatory measures to curb imports set in.

“Pakistan’s growth must be driven by investment and productivity, which will put an end to the boom and bust cycles that affect the country every few years,” said Illango Patchamuthu, World Bank Country Director for Pakistan.

“It is entirely possible for Pakistan to transform its regulatory environment and reduce the cost of doing business. On the revenue front, reforms to improve tax administration and widen the tax base are critical. Over the adjustment period and beyond, actions outlined in the recently announced Ehsaas Program can protect the poor and vulnerable through social safety nets and safeguarding public spending on health and education,” Patchamuthu added.

Overall, across South Asia, imports grew much stronger than exports in the last two years, reversing the region’s exports dynamics of the early 2000s.

Strong domestic demand, fueled by a consumption and investment boom, resulted in high import growth of 14.9 per cent in 2017 and 15.6 per cent in 2018, which is nearly twice as high as the region’s export growth. In comparison, exports grew by only 4.6 per cent in 2017 and 9.7 per cent in 2018.

According to the report, South Asia holds on to its top spot as the world’s fastest growing region, with growth set to step up to 7.0 per cent in 2019, then 7.1 percent in 2020 and 2021, but the region needs to increase its exports to sustain its high growth and reach its full economic potential, report added.