Growth in gross domestic product (GDP) in Pakistan slowed to 3.6% in Fiscal Year 2013 (ended 30 June 2013) from 4.4% a year earlier. The falloff was almost entirely in the large service sector, which saw growth slow to 3.7% from 5.3%. Within services, markedly weaker growth in transportation and general government services substantially outweighed faster growth of financial services and wholesale and retail trade. Performance in other sectors was broadly consistent with FY2012. Agriculture expanded by 3.3%, slightly less than the 3.5% gain posted a year earlier. Robust 5.2% growth in construction, reflecting flood rehabilitation, helped to boost industry growth to 3.5%. Despite severe power load shedding, large-scale manufacturing edged upward by 2.8%, following several years of near stagnation. Electricity and gas fell by 3.2%. Unpredictable and severe power load shedding continued, knocking an estimated 2 percentage points from GDP. Fixed investment deteriorated again, declining to 12.6% of GDP, as private investment slipped further to only 8.7% of GDP, a drop of 4.1 percentage points in the past 5 years.
|Selected Economic Indicators (%) – Paksitan||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||-0.8||1.0||-0.9||-0.8|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
Headline inflation in FY2013 averaged 7.4%, down from 11.0% a year earlier, as food and other prices eased and higher administered prices for electricity were delayed until after national elections. Bank lending to the government continued to increase rapidly, raising broad money growth to 15.9% even as net foreign assets declined markedly. Fiscal performance in FY2013 continued the pattern of recent years as expenditure continued to outstrip revenue by a wide margin, substantially reflecting the continuation of excessive subsidies and low tax effort. Overruns on subsidy outlays - largely reflecting failure to adjust electricity tariffs and the settlement in June of much of the power sector’s arrears - pushed the fiscal deficit again to 8.8% of GDP. The current account deficit narrowed to $2.3 billion in FY2013 (equal to 0.9% of GDP). Despite an improved current account deficit, official foreign exchange reserves fell sharply under the burden of external debt repayments and intervention in the foreign exchange market, dropping from $10.8 billion at the end of June 2012 to $6.0 billion a year later. Reserves equaled less than 1.5 months of projected imports of goods and services next year.
The new government that took office in June 2013 quickly signaled restoring economic sustainability and rapid growth as high priorities for its 5-year term. It emphasized dealing with the energy crisis, boosting investment and trade, upgrading infrastructure, and ceding most economic functions to the private sector. To address low foreign exchange reserves, fiscal and external imbalances, and low growth, the government agreed on a wide ranging economic reform program with the International Monetary Fund, supported by a 3-year loan worth $6.7 billion.
The program aims to eliminate power subsidies in fiscal consolidation that includes strengthening the country’s notorious weak revenue base and ending the drain from loss-making public enterprises. Other structural reforms hope to strengthen the financial system and improve the business climate. Fiscal consolidation is expected to limit GDP growth in FY2014 to 3.0%. The current account deficit forecast remains at 0.8% of GDP, as the foreign reserve position strengthens. The monetary program is likely to limit average inflation to 8.0% for the year.
Source: ADB. 2013. Asian Development Outlook 2013 Update. Manila.