Pakistan's
economic performance improved further in
FY2005 and the economy achieved the highest
growth in the last two decades. However,
because of shortages of essential food items,
high oil prices, and strong domestic demand,
inflation increased sharply. The fiscal
deficit also increased, and the current
account of the balance of payments turned
into deficit after three years. Sound macroeconomic
fundamentals, increasing private investment,
and expanding development expenditure will
sustain high economic growth in FY2006.
The economy is projected to grow by 6.5
percent in FY2006. After growing at very
high rates in the last two years, the manufacturing
sector is expected to settle down to a more
sustainable, but still robust, growth of
about 11.0 percent in FY2006. Substantial
production capacity built in the last two
years will come on line during the year,
and exemption of major export industries
from GST will also boost production. Agricultural
growth is also likely to decline in FY2006,
mainly because of the high base effect.
It will be difficult to sustain the last
year's all time high output of cotton because
of heavier monsoon rains and greater moisture
that increase crop vulnerability to pests.
The growth of the agriculture sector is
projected at about 3.0 percent in FY2006.
In the services sector, the rapid growth
of telecom services, banking, and trade
is likely to be sustained in FY2006.
With sound macroeconomic fundamentals, pick
up in private investment, and expanding
development expenditure, medium-term prospects
for the Pakistan economy look good. Improved
relations with India and possible increase
in bilateral trade will also boost growth
in the medium term. Reduction of external
security concerns in the region is also
likely to promote foreign investment. Thus
for medium term, it is projected that the
high economic growth will be sustained,
inflation will come down, the fiscal deficit
will remain below 4.0 percent of GDP, and
the current account deficit will be in the
range of at 2.5-3.0 percent of GDP.
High oil prices can have a negative impact
on the Pakistan economy, necessitating revisions
in a number of projections given above.
If oil prices continue to remain at the
current record high level, or rise further,
projections for imports, the fiscal deficit,
and inflation may have to be revised upward.
High oil prices could also adversely affect
the global economy, resulting in lower growth
of Pakistan's |
