ADB Raises Pakistan GDP Growth Forecast Amid War Talk by Modi
By RiazHaq
CA
The Asian Development Bank (ADB) has raised Pakistan's economic growth forecast for fiscal year 2017 (from July 2016 to June 2017) from 4.8% to 5.2%. The Bank also sees a brighter outlook for the entire South Asian region. However, the prospects of even a limited India-Pakistan war could derail the economies of the entire South Asia region. I hope that sanity will prevail in New Delhi to tone down its war rhetoric, abstain from escalation, and maintain the current economic momentum.
ADB Forecast
"...assuming further improvement in energy supply and security, and likely recovery in cotton and other agriculture-the growth forecast (for Pakistan) for FY2017 is revised up to 5.2%", says the Asian Development Outlook 2016 Update released September 27, 2016.
The ADO which is launched annually in March and updated in September provides a comprehensive analysis of macroeconomic issues in developing Asia.
The ADB report says that "growth in Pakistan will outperform the ADO 2016 projection for 2017". Here's an excerpt from the ADB report:
"In Bangladesh and Pakistan, estimated growth in the 2016 fiscal year, to 30 June, exceeded the forecasts because robust performance in manufacturing and services more than compensated for unexpected weakness in agriculture. Increased consumption and public investment contributed to better performance in Bangladesh in 2016. A slower growth forecast for 2017 is retained as agriculture growth is expected to moderate. Growth in Pakistan will outperform the ADO 2016 projection for 2017 on improvements in energy supply, higher infrastructure investment in an economic corridor project, and a better security environment. Improved growth in these two large economies contrasts with Nepal, where the growth estimate for the 2016 fiscal year, which ended on 15 July, is below the forecast following disruption to supply and trade, delayed reconstruction of earthquake damage, and a poor monsoon. The economy is expected to recover in 2017 as forecast in ADO 2016 on markedly accelerated reconstruction spending and a good monsoon able to lift agricultural output."
Impact of US Interest Rate Hikes
On the impact of possible interest rate hikes by the US Federal Reserve on national debt situation in South Asia, the ADB report says:
"Interest rates pose less risk to India and Pakistan, where public debt is held mostly by domestic investors. However, where a significant share of such debt is short term, as in Pakistan, rollover risks are high and debt dynamics remain vulnerable to shocks. For all these economies, staying on course with fiscal consolidation through sound debt management and the progressive expansion of the tax base will help provide the fiscal resources and resilience needed to cope with future domestic or external shocks."
Macroeconomic Indicators
ADO 2016 Update says that the planned reduction in Pakistan's fiscal year 2017 budget deficit would enhance funding for private sector credit and enable it better to support rising domestic demand. The federal government budget for FY2017 projects further reduction in the deficit to 3.8% of GDP achieved through new revenue measures and streamlining current expenditure.
Tax revenues are projected to increase by half a percentage point, raising the ratio of tax to GDP to 12.8% by eliminating more tax concessions and exemptions, expanding the withholding system as part of administrative reform to widen the tax base, and raising some excise taxes and customs duties, the report added.
The report indicates that Pakistan's current account deficit is expected to widen in FY2017 to about $5 billion, or 1.6% of GDP, which is higher than forecast in March. The revision reflects rising global oil prices, declining exports and continued expansion in imports stemming from faster economic growth.
Industrial Indicators
Pakistan's fiscal year 2015-16 saw the production of motorcycles soar to a new high of over 2 million units representing a 16.5% surge from last year. At the same time, passenger cars and light trucks sales rose to over 200,000 in fiscal 2016, a 20% jump over the same period last year.
Motorcycle Sales
Rising motorcycle sales in Asia's developing nations like Pakistan are seen as a barometer of expanding middle class . It is, in part, attributed to rising incomes and availability of bank financing at historic low interest rates in the country.
As many as 2,071,123 motorcycles were manufactured during July-June (2015-16) compared to 1,777,251 units during July-June (2014-15), according to the latest data released by Pakistan Bureau of Statistics (PBS).
Car Sales
In addition to the double digit increase in motorcycle sales, Pakistan also experienced a 20% jump in sales of passengers cars, light commercial vehicles (LCVs), vans and jeeps. The total sales of local vehicles increased by 21% to 216,568 as compared to 179,953 units sold in FY15.
Auto Parts Industry
Rising auto and motorcycle sales are helping boost Pakistan's auto parts industry as well. “We are getting orders and the pace is increasing,” said Sultan and Kamil International CEO Faisal Mahmood on the sidelines of the 12th Pakistan Auto Show 2016 at the Lahore International Expo Center. Mahmood’s company makes more than 350 automotive parts to export to all major automobile markets in the world.
Other Growth Industries
Among other industries seeing significant growth are pharmaceuticals (6.54%), cement (17.01%), chemicals (8.13%), non-metallic mineral products (10.02%), fertilizers (13.81%), leather products (7.76%) and rubber products (7.16%).
Summary
Pakistan's economic recovery is in full swing with double digit growth in multiple industries , including auto, pharma, chemicals, cement, fertilizers, minerals, etc. It is expected to pick up steam over the next several years with new investments in China-Pakistan Economic Corridor-related projects . Prospects of even a limited war in South Asia could derail the economies of the entire region. I hope that sanity will prevail in New Delhi to maintain the current economic momentum.
