Pakistan’s Gross Domestic Products growth is expected to edge up to 4.5% in financial year 2016, assuming continued low prices for oil and other commodities, the expected pickup in growth in the advanced economies, and some alleviation of power shortages.
|Selected economic indicators (%)||2015||2016|
|ADO 2015||Update||ADO 2015||Update|
|Current Account Balance (share of GDP)||-1.0||-0.8||-1.3||-1.0|
Pakistan’s economic expansion for financial year (FY) 2015, which ended on 30 June 2015, was led by services as growth in manufacturing slowed. Industrial growth was hobbled by a slowdown in large-scale manufacturing to 3.3% owing to continued power shortages and weaker external demand. The resilience of small-scale manufacturing and construction sustained industrial growth at 3.6%. Agriculture growth remained modest at 2.9%. Private fixed investment slipped to equal 9.7% of Gross Domestic Product (GDP) from 10.0% a year earlier because of continuing energy constraints and the generally weak business environment that has depressed investment for several years.
Headline inflation sharply declined in FY2015 and improved on the Asian Development Outlook (ADO) 2015 projection. Inflation for both food and other items dropped significantly, reflecting adequate food supplies and the transmission into domestic prices of lower global prices for oil and other commodities.
The current account deficit narrowed in FY2015 from 1.3% in FY2014. The reasons were lower oil imports (which had been 35% of the total), larger inflows under the Coalition Support Fund, and robust workers’ remittances. The benefit of the 18% decline in expenditures on oil imports was offset to some extent by increased imports of machinery and metal products, as well as of food and transport equipment.
Prospects for large-scale manufacturing remain subject to progress on power supply. Plans to build an economic corridor linking Kashgar in the People’s Republic of China to the Pakistani port of Gwadar were announced in April, and this megaproject could significantly boost private investment and growth in the coming years.
Inflation is expected to be slightly higher in FY2016 than in FY2015 as oil prices recover. The ADO Update 2015 sees lower inflation than forecast earlier, but inflationary pressures may come from food prices pushed higher by possible supply shortages following floods in July 2015. Monetary policy is expected to remain supportive.
In FY2016, the current account deficit is expected to widen marginally as slightly higher oil prices and stronger growth in the advanced countries translates into an expansion in trade. Nevertheless, exports are expected to increase only slightly after 2 years of stagnation, as manufacturing continues to suffer under energy shortages and low cotton prices see only a modest increase.
Excerpted from the Asian Development Outlook 2015 Update.