Reflecting some improvement in electricity supply that facilitated increased industrial production, growth in the gross domestic product (GDP) of Pakistan reached an estimated 4.1% in Fiscal Year 2014 (ended 30 June 2014), unexpectedly accelerating from 3.7% in FY2013. Reform initiated by the government helped improve economic conditions during the year. Renewed support from development partners and a $2 billion eurobond issue, the first in 7 years, helped stabilize the currency and rebuild foreign exchange reserves from very low levels. The continuation of economic reforms and efforts to improve the security environment would improve business confidence and help revive private investment. The Asian Development Outlook (ADO) 2014 Update revises the growth projection for FY2015 to 4.2%. However, even concerted reform will need several years to eliminate electricity and gas shortfalls and to effect the change needed to lift structural constraints on growth.
|Selected Economic Indicators (%) - Pakistan||2014||2015|
|ADO 2014||Update||ADO 2014||Update|
|Current Account Balance (share of GDP)||-1.4||-1.2||-1.3||-1.3|
Source: ADB estimates.
The consolidated fiscal deficit excluding grants was contained at 5.5% of GDP in FY2014, down from an average of 8.0% in the previous 3 years. This improvement came mainly from a large one-off increase in nontax revenues and a provincial cash surplus equal to 0.3% of GDP. The budget for FY2015 targets further reduction in the fiscal deficit to 4.9% of GDP through expenditure economies, reduced energy subsidies, and a provincial cash surplus equal to 0.9% of GDP.
Headline inflation increased to an average of 8.6% in FY2014 from 7.4% in the previous year, lower than the ADO 2014 forecast. Consumer price inflation was volatile through the year because of food price spikes in the first half of 2014. In response, the central bank kept monetary policy tight in FY2014, increasing the policy rate by a cumulative 100 basis points to 10%. Inflationary expectations have nevertheless stabilized according to a May 2014 joint survey of business and consumer sentiment, with respondents apparently reacting to exchange rate stability stemming from improved financial inflows in the second half of FY2014 and reduced government borrowing from the domestic banking sector to support the budget. Inflation is now expected to average 8.2% in FY2015, slightly lower than FY2014. Security challenges, floods in September 2014 in parts of the country, and political demonstrations pose downside risks to the FY2015 forecast.
The current account deficit in FY2014 was essentially unchanged from the previous year’s 1.1% of GDP and slightly below the ADO 2014 forecast. The trade deficit widened moderately, but this was largely offset by continued strong growth in remittances from overseas workers. The projection for the current account in FY2015 is unchanged.
Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.