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World Bank lowers Pak GDP growth projections to 3 per cent - Printable Version

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World Bank lowers Pak GDP growth projections to 3 per cent - Naveed Yaseen - 12-13-2008 05:33 AM

By Mehtab Haider
ISLAMABAD: The World Bank (WB) has lowered the GDP growth projections for Pakistan to 3 per cent and the current account deficit to 4.6 per cent of the GDP for the current fiscal year 2008-09, states the Global Economic Prospects 2009 released by the WB.

The current account deficit stood at 8.1 per cent of the GDP in the previous fiscal year 2007-08, which would be brought down to 4.6 per cent of the GDP by end June 2009. The WB forecasts Pakistan’s GDP growth to 4.5 per cent by the next financial year 2009-2010.

According to the WB report, the slowdown in growth during 2008 reflected increasing weakness in the region’s two largest economies, India and Pakistan.

In India, growth slowed across all sectors, with tighter monetary policy, rising inflationary pressures, and mounting fiscal and current account deficits weighing down economic activity.

The more recent onset of the global financial crisis resulted in sharp losses in India’s equity markets and drove down the value of the Indian rupee. Foreign institutional investors pulled out of India to cover losses in high-income countries and as risk aversion heightened across the globe.

In Pakistan, the economy deteriorated sharply over the course of 2008, as headline inflation surged, and the current account and fiscal deficits jumped on the back of the rising oil and food prices.

Political turmoil and the ongoing security concerns have also taken a toll on Pakistan’s economy, while the global financial crisis added substantial downward pressures on its financial markets.

Prior to reaching an agreement with the IMF for standby credit in mid-November, Pakistan came close to a full-blown balance of payments crisis. In neighbouring Afghanistan, the economy has been hurt by a decline in agricultural output caused by poor precipitation, a sharp rise in international food prices, and the wheat export restrictions imposed by Pakistan, in addition to the disruptive effects of the spreading insurgency.

The initial effects of the global financial crisis in South Asia were sharp corrections in regional equity markets.

Bourses in India, Pakistan, and Sri Lanka dropped 57 percent, 39 percent, and 35 percent, respectively, over the year through mid-November (and 66, 50, and 39 percent, when measured in U.S. dollars).

Notably in Pakistan, curbs on the sale of equities were imposed in August, effectively preventing the exit of existing investors and discouraging potential new investors.

The general deterioration in regional trade balances has been offset by large remittance inflows, which represent a sizable, and generally increasing share of GDP: during 2007, 14 percent in Nepal, 8 percent in Bangladesh and Sri Lanka, 4 percent in Pakistan, and 3 percent in India.

Foreign Direct Investment (FDI) inflows remained strong through the first half of 2008, helping to ease external financing requirements. In India, FDI surged to 3 percent of GDP in 2008, up from 1.4 percent in 2007.

The FDI inflows to Pakistan remained relatively steady through the summer of 2008-on course to match the 3.7 percent of GDP recorded in 2007-but the extreme financial and economic difficulties encountered during the second half of the year were likely to have changed that for the worse.

http://www.thenews.com.pk/daily_detail.asp?id=151566