2014年-世界发展银行全球_Pakistan_Development_Update_April_2014_27页_1mb

Pakistan Development Update Summary (April 2014)

Core Content

This document provides an overview of Pakistan's economic performance and outlook in early 2014, highlighting key developments in growth, fiscal policy, inflation, and the external sector. It also outlines structural reforms and the government's strategy to improve the economic environment.

Main Economic Developments

Economic Growth

• Real GDP growth in FY13 was 3.6%, and it is expected to recover and reach 3.6-4.0% in FY14, slightly below the official target of 4.4%.
• Industry and services sectors are the main drivers of growth, while agriculture has underperformed due to adverse weather conditions.
• Large-scale manufacturing (LSM) grew by 6.7% in H1-FY14, up from 2.2% in H1-FY13, fueled by improved energy supply, higher export prices, and policy confidence.
• Services sector has shown the strongest recovery, with growth increasing from 2.9% in Q1-FY13 to 5.9% in Q1-FY14.
• Agricultural output is expected to be slightly below target, with cotton production declining due to lower cultivation area and lower prices, while rice and sugarcane production exceeded expectations.

Fiscal Consolidation

• Fiscal deficit is projected to be around 5.8% of GDP in FY14, down from 8% in FY13.
• Tax revenue is improving, with the Federal Board of Revenue (FBR) implementing a new tax strategy to broaden the tax base and reduce exemptions.
• Subsidies have been reduced, especially in the energy sector, contributing to fiscal consolidation.
• Government borrowing from the central bank has decreased compared to FY13, while private sector borrowing has increased, indicating a shift in the financing structure.
• Monetary policy has been tightened, with the State Bank of Pakistan (SBP) increasing the policy rate by 50 bps in 2013, which helped reduce inflationary pressures.

Inflationary Concerns

• Headline inflation in FY14 averaged 8.6%, slightly higher than 8.2% in the same period last year and 7.4% for FY13.
• Core inflation (NFNE) declined significantly, from 10.4% in FY13 to 8.3% in H1-FY14, suggesting that demand-driven inflation is under control.
• Inflationary expectations were raised by policy adjustments, including increased GST and VAT rates, and higher energy prices.
• SBP's interest rate hikes helped manage inflation, and the EMBI+ risk spread has declined, reflecting improved market confidence.

External Sector

• The current account deficit remains modest at around 1% of GDP.
• Net official foreign exchange reserves have improved from 0.6 months of imports in November 2013 to above 1.1 months of imports in March 2014.
• The external position is slowly improving due to the SBP's shift toward rebuilding reserves, including spot market dollar purchases.
• Foreign Direct Investment (FDI) and private investment are constrained by political instability and poor business environment.

Key Information and Policies

• FBR's tax strategy aims to expand the tax base and remove exemptions over three years.
• Tax Directory of Parliamentarians was published to improve transparency.
• The IMF program under the Extended Fund Facility (EFF) supports fiscal consolidation, with the goal of reducing the fiscal deficit to 5.8% of GDP.
• The government plans to issue a US$500 million to US$1 billion Eurobond in the fourth quarter of FY14 to access international markets.
• Circular debt in the energy sector has been partially resolved, but it is re-emerging, affecting fiscal adjustment.
• Private sector credit has started to recover, with growth of 4.6% YoY by mid-March 2014, driven by improved industry and services performance.

Structural Reforms

• Tax reforms are a central focus, with efforts to improve compliance and broaden the tax base.
• Reform of State-Owned Enterprises (SOEs) is ongoing, aimed at improving efficiency and reducing fiscal burdens.
• Investor confidence is gradually improving, supported by policy reforms and a more stable economic environment.

Risks and Challenges

• Domestic risks include the ongoing challenges in the energy sector and the need for continued fiscal discipline.
• External risks remain, but are expected to decline as the external position strengthens.
• Political instability continues to affect FDI and private investment.
• Uncertainty in the policy environment may hinder long-term economic growth and investor confidence.

Conclusion

• Pakistan's economy is showing signs of recovery, with improved growth in industry and services, fiscal consolidation, and a decline in inflationary pressures.
• While challenges remain, particularly in the energy sector and external financing, the government's reforms and improved policy stance are expected to support sustainable growth and stability in the coming months.