Pakistan's economic growth is set to slump further to 3.9 per cent in the fiscal year 2019 from 5.2 per cent in 2018, the Asian Development Bank forecast Wednesday, citing the "macroeconomic challenges" faced by the cash-strapped country.
In its flagship economic publication titled "Asian Development Outlook 2019," the Manila-based bank said Pakistan's economic growth decelerated in the fiscal year 2018 despite revived agriculture.
The expansionary fiscal policy markedly widened the budget and current account deficits and drained foreign exchange, it said.
"Until macroeconomic imbalances are alleviated, the outlook is for slower growth, higher inflation, pressure on the currency, and heavy external financing needed to maintain even a minimal cushion of foreign exchange reserves. Recurrent crises in the balance of payments require that firms become more export competitive," the ADB said.
Pakistan's GDP growth is forecast to decelerate further to 3.9 per cent in FY2019 as macroeconomic challenges continue and despite steps to tighten fiscal and monetary policies to rein in high and unsustainable twin deficits.
Continued fiscal consolidation in FY2020 will keep growth subdued at 3.6 per cent, the ADB said.
To meet its large financing needs, the Pakistan government is discussing a macroeconomic stabilisation programme with the International Monetary Fund (IMF).
Pakistan was also arranging financial assistance and oil credit facilities from bilateral sources, the ADB said, referring to financial assistance received from Islamabad's close allies like Saudi Arabia, the UAE and China.
For the fiscal year 2018 (ending June 30), the estimated GDP growth rate has been revised downward from earlier 5.8 per cent to 5.2 per cent. Growth, therefore, slowed from 5.4 per cent a year earlier, with revisions indicating slowdowns in industry and services, the ADB said.
Lower growth in industry mirrored weaker growth in large-scale manufacturing, which is almost half of the sector, from 5.4 per cent in FY2017 to 5.0 per cent, as well as a slowdown in construction despite a strong revival in mining and quarrying, it said.
Growth in services decelerated from 6.5 per cent in FY2017 to 5.8 per cent last year. Growth in agriculture accelerated, by contrast, from 2.1 per cent in FY2017 to 3.7 per cent on an uptick in minor crops and cotton ginning.
On the demand side, growth in private consumption, which provides on average 81 per cent of GDP and was the largest contributor to growth in FY2018, found support in low inflation and interest rates.
To contain the rising budget deficit, development expenditure, equal to 5.3 per cent of GDP in FY2017, was cut to 4.6 per cent, the bank noted.
Gross public debt rose from the equivalent of 67.0 per cent of the GDP at the end of FY2017 to 72.5 per cent a year later, above the 60 per cent threshold stipulated in the Fiscal Responsibility and Debt Limitation Act.
Pakistan's external public debt including liabilities increased by USD 9.2 billion to USD 75.4 billion in FY2018, rising from 21.7 per cent of GDP in FY2017 to 26.6 per cent, the ADB said.
Pakistan ranks 107 of 140 economies on the Global Competitiveness Index 2018.
The country's persistently low score and ranking on the index are reflected in its companies' struggles to compete in international markets and in weak export opportunities, which spark recurring crises in the balance of payment, the ADB noted.
Pakistan lags behind the South Asia regional average on most index indicators. Business competitiveness in Pakistan suffers under a challenging macroeconomic environment and adverse terms of trade, significantly eroding production and exports.
Pakistan's exports remain largely primary products whose lack of sophistication and diversification condemn them to decline shares in world markets, the bank said.