ISLAMABAD: The Asian Development Bank (ADB) has cautioned that the political demonstrations, floods as well as security challenges for Pakistan pose downside risks to the economic growth forecast for fiscal year 2015.
In its ‘update’ to the ‘Asian Development Outlook 2014’ published yesterday, ADB revised the economic growth projection for 2015 to 4.2 percent, and states projections for 2015 assume that the government will make satisfactory progress on its economic agenda to reform the energy sector and state-owned enterprises, rationalise import tariffs, and improve the business climate.
Revising the growth projection, the ADB report however, said even concentrated reform would need several years to eliminate electricity and gas shortfalls and to effect the change needed to lift structural constraints on growth.
GDP growth projected at 4.2 percent reflects some easing of fiscal consolidation and increased allocations for public sector development spending.
Continuing reform and an improving security environment would further boost business confidence and foster private investment.
The prospect of strong growth in manufacturing depends on further progress in easing energy shortages.
The consolidated budget for 2015 targets further trimming the deficit to 4.9 percent of GDP from 5.5 percent estimated for last fiscal year through reduced expenditure. This projected decline in the deficit assumes a provincial cash surplus equal to 0.9 percent of GDP.
The budget envisages current expenditures increasing by only 1.6 percent from the estimated out-turn in fiscal year 2014. While most major categories of spending increase by double-digit, including a 10 percent increase in salaries and pensions and a 15 percent increase in interest payments, large savings are expected from a 37 percent drop in subsidies, equal to 0.6 percent of GDP, achieved mainly by cutting untargeted power subsidies.
Containing subsidies will be a challenge given overruns in recent years, and success will depend on implementing power sector reforms to raise tariffs enough to meet costs, improve collection, reduce leakage, and invest in generation, transmission, and distribution systems.
Power tariff increases in fiscal year 2014 helped reduce subsidies, but savings were partly offset by subsidies to cover improved supply.
The ADB report says that consumer price inflation is expected to average 8.2 percent in fiscal year 2015, slightly down from 8.6 percent in fiscal year 2014.
A business and consumer sentiment survey in May 2014 found inflationary expectations had steadied, apparently reflecting improved exchange rate stability and much lower domestic borrowing for budgetary support as development partners help finance the government’s economic programme.
INTERNEWS
