ISLAMABAD, October 8, 2018– Pakistan needs to address growing fiscal and current account deficits on a sustainable basis for long-term growth, the World Bank said today in a report.
The World Bank’s twice-a-year Pakistan Development Update said the country’s economic growth accelerated to 5.8 percent in the 2018 financial year – the highest level in more than a decade.
But as consumption-led growth picked up, the macroeconomic imbalances also grew, increasing vulnerabilities that compromise future growth. The fiscal deficit continued to expand, revenue mobilization weakened, and spending rose. On the external front, the current account deficit grew to 5.8 percent of Gross Domestic Product as the country faced the largest trade deficit ever.
“Pakistan’s growth has to be driven by investment and productivity. This will put it on a path to end the boom and bust cycles its economy faces” says Illango Patchamuthu, World Bank Country Director for Pakistan. “This will create more and better paid jobs and is a reliable path to future economic growth and stability.”
The report notes that exports rose, and imports slowed down in the second half of the year due to a more flexible exchange rate. It recommends reduction in trade costs and improvements in the investment climate to enable Pakistan to compete in global markets.
The report acknowledges that the mini budget is a step in the right direction, but for the gains to continue, additional and urgent reforms are required. These include strengthening taxation, improving public finance and increasing spending efficiency. It also makes a case for investing in people.
“The key is to invest in human capital”, says Enrique Blanco Armas, World Bank Lead Country Economist for Pakistan. “An educated, healthy and skilled labor force will be more productive and adaptable to new technologies, setting the country on a long-term growth path.”
The World Bank in Pakistan
Pakistan has been a member of the World Bank since 1950. Since then, the World Bank has provided $34.5 billion in assistance. The World Bank’s program in Pakistan is governed by the Country Partnership Strategy for FY2015-2020 with four priority areas of engagement: energy, private sector development, inclusion, and service delivery. The current portfolio has 43 projects with a net commitment of $7.79 billion.