South Asia Economic Focus
KARACHI: The World Bank has asked Pakistan’s government to build
consensus among all the stakeholders to ensure that $46-billion
China-Pakistan Economic Corridor (CPEC) projects deliver on its
potential.
“CPEC, if completed, could be a game changer for Pakistan, but is
currently mired in political economy risks,” the World Bank said in its
report, titled, ‘South Asia Economic Focus (Spring 2016), Fading
Tailwinds’.
“Furthermore, a prolonged slowdown in China could diminish financial inflows under these projects,” it said.
The twice-a-year report considered the lack of consensus on the CPEC
projects as one of the risks posing to high-growth potential of the
country’s economy.
The World Bank observed that the CPEC, along with energy projects,
spurred growth in large scale manufacturing and construction sectors.
“Any demand-driven economic expansion as a result of CPEC’s
implementation is expected to be limited in the short-run as increased
investment will likely be offset by a significant increase in imports,”
the bank said.
The report said Pakistan’s economic growth is picking up in the
current fiscal year, supported by falling commodity and fuel prices,
increased energy supply and improved law and order situation.
“Growth is projected to accelerate modestly from 4.5 percent in 2016
to 4.8 percent in 2017, supported by growing industry and services and
greater investment as well as buoyed by low oil prices and substantial
remittances,” it said.
The bank, however, suggested the government to maintain the momentum
in reforming its business climate, access to finance and trade regime.
“As the election year approaches in 2018, the government may find it
difficult to implement unpopular decisions, particularly on taxation and
energy,” it said.
“Pakistan should also monitor a key driver of remittances: public
investment cuts and the resulting restrictions on foreign employment in
GCC (Gulf Cooperation Council) countries, particularly in construction,
where many Pakistani migrants are employed.”
The World Bank said South Asia is the fast-growing region in the world, escaping the turbulence in the international markets.
It said India will continue to lead the regional economies. Global
growth dropped to 2.4 percent last year from 2.6 percent in the
preceding year.
The bank, however, said anemic global economy has bitten exports
revenue of Pakistan, “revealing the country’s vulnerability to a narrow
base and a high concentration in few destinations.”
“Imports also contracted in early FY2016 but seem to be recovering
since November 2015, particularly in food and machinery,” it said.
The report forecast that current account deficit will rise to 1.3
percent by FY2018, assuming that prices would continue to remain soft.
“A decline in exports in FY2016 (followed by marginal export growth
forecasts for the next two years) and an expected increase in imports
will weaken the trade account,” it said.
Further, the World Bank acknowledged the marked improvement in the
tax collection by the Federal Board of Revenue, accounting for 70
percent of the country’s total tax revenue, because of the ongoing
fiscal reforms.
“Tax collection is projected to improve as the government continues
with efforts to rationalise tax exemptions in the upcoming budget, while
improving compliance and administration,” it said.
