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Economy
Growth picked up slightly in 2012, but for the fifth consecutive year low growth, falling investment, excessive fiscal deficits, high inflation, and a deteriorating external position weighed on Pakistan's economy. While problematic security and natural disasters are endemic, a difficult political situation stalled effective policy response to macroeconomic and structural problems, especially regarding energy. As official reserves are steadily declining on low capital inflows and heavy debt repayments, downside risks color the outlook.
Economic assessment
Pakistan's economic performance during the first half of fiscal year 2012 (ended June 2012) was driven by a rebound from the devastating floods a year earlier that was partly offset by record power outages from load shedding in the second half. Growth strengthened to 3.7% but again remained well below the 7% pace needed to absorb new workforce entrants.
| Selected Economic Indicators (%) - Pakistan | 2013 | 2014 |
|---|---|---|
| Gross Domestic Product (GDP) growth | 3.6 | 3.5 |
| Inflation | 9.0 | 9.5 |
|
Current account balance (share of GDP) |
-0.8 | -0.9 |
Source: ADB estimates.
Economic Prospects
The end of the government’s 5-year term in mid-March 2013 limited political scope for major policy or structural reforms in Pakistan. Economic developments in FY2013 are therefore unfolding along broadly similar lines as FY2012 but with deepening concerns about sustainability and the adequacy of foreign reserves.
The economic situation weakened further in the first half of FY2013 as official reserves declined markedly, food and general inflation both reaccelerated in January following their earlier decline, and exports stagnated while imports contracted. Economic growth is expected to slow to 3.6% in FY2013, with risks on the downside from possible shortfalls in agricultural production, which may offset the modest improvement in large-scale manufacturing during the first half of the year. Production of petroleum products, iron, and steel picked up, but growth in textiles and food, which account for almost half of large-scale manufacturing production and the bulk of exports, remained negligible. Manufacturing performance for the year will hinge largely on limiting power outages during the hot season, when demand peaks. With little prospect for improving energy supply or investment, Pakistan's growth is expected to remain weak at 3.5% in FY2014.
Source: ADB. 2013. Asian Development Outlook 2013. Manila.