The World Bank expects Pakistan’s economy to accelerate to 4.5 percent in the fiscal year ending June 30, saying economic reforms and a crackdown on violence in the country’s commercial hub of Karachi has boosted investors’ confidence.
The South-Asia’s second-biggest economy is also set to gain the China Pakistan Economic Corridor (CPEC) agreement which has promised $46 billion Chinese investment mainly in the country’s infrastructure and power projects.
For the whole South Asian region, the latest report titled January 2016, Global Economic Prospects” forecast 7.3 percent growth, slightly up from 7 percent in 2015. South Asian economies have taken a less hit from the global slowdown because of relatively low global integration and the lower international energy prices.
The report noted that macroeconomic adjustment under an ongoing IMF program is progressing and investors’ confidence has strengthened due to a crackdown on violence in the country’s biggest city of Karachi. The CPEC, if implemented, also has the potential to lift long-term growth in the country of 190 million people.
The World Bank noted that Pakistan once again tapped the international capital markets and launched a US$500 million Eurobond in September 2015, with the same maturity and coupon as its issue a year earlier.
However, both Pakistan and India, the region’s biggest economy have been on a path of fiscal consolidation over the past three years, and fiscal restraint is curbing demand-side pressures. Lower inflation has enabled central banks in India and Pakistan to cut policy rates to support activity and, in Sri Lanka, keep policy rates at record lows.
The currencies of India, Pakistan and Sri Lanka, which had appreciated in real effective terms since 2013, have stabilized in recent months.
Pakistan has also made progress in reining in its budget deficit from 8.4 percent of GDP in FY2013 to 5.3 percent in FY2015, the report said. However, debt levels remain high at 65 percent of GDP, the result of years of fiscal slippages, and interest payment costs are about 4.4 percent of GDP.