Ahead of general elections in July, the government in Islamabad has predicted Pakistan’s economy will grow more in the next year than it has in any single year in a decade. Economists disagree, predicting growth will be slower than last year in South Asia’s second largest economy.
Elixir Securities Pakistan Pvt., BMA Capital Management Ltd., and Standard Chartered Plc are among organizations predicting slowed economic growth. The dismal economic forecast expects Pakistan’s economy will be slowing down for the first time in 6 years.
According to 6 economists who spoke to Bloomberg, Pakistan’s economy is expected to slow to 5.2% this coming fiscal year, whereas last year’s economic growth was at 5.8%. The government is more optimistic, predicting 6.2% growth.
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What’s Causing Growth to Slow?
Hamad Aslam, research director at Elixir Securities Pakistan Pvt. in Karachi, Pakistan, said “Pakistan’s economy can’t grow faster anymore with the external imbalances.”
Although the government has put forward a winning face just a few months ahead of elections, Pakistan’s current account deficit increased 50% in the past year. Both the International Monetary Fund (IMF) and the World Bank have warned that the current account deficit could hinder Pakistan’s economic growth. Dwindling exports, diminished foreign investment, and slow global trade are believed to be the main causes behind the growing deficit.
Aslam said there is “increased conviction on Pakistan entering an IMF program later this year that will focus on controlling the deficit over growth.”
Dollar reserves have also plummeted at the fasted rate in Asia, while the government has been forced to devalue the currency on two different occasions since December. According to analysis from Bloomberg, last year, the Pakistani stock market performed worse than any other market in the world.
The country’s economy also faced turmoil last year when Prime Minister Nawaz Sharif was forced to resign amid allegations of corruption. Terror attacks and Taliban insurgencies have also discouraged investment in Pakistan’s economy. Chronic energy shortages likewise present a problem, which CPEC, China-Pakistan Economic Corridor, hopes to fix.
The optimistic economic forecast does not reflect in the budget proposed last month by Islamabad. Development spending was cut by 20% to 800 billion rupees ($6.92 billion). The government has scaled back on infrastructure spending in an attempt to meet tight fiscal targets in a bid to win support from the International Monetary Fund.
“No Need to Panic”
Earlier this month, Director General for Central and West Asia Regional Development for the Asian Development Bank (ADB), Werner Liepach, said there is “no need to panic” over Pakistan’s economy. While speaking at the at the 51st Annual Meeting of the ADB Board of Governors in Manila, Liepach said Pakistan will not need a bailout package.
In late April, Pakistan announced they would not be seeking an IMF bailout package, although there are still voices in Pakistan calling for such assistance.
Despite the expansion of Pakistan’s current account deficit to $12.03 billion, Liepach remained optimistic, explaining the cause behind the deficit, “What’s happened is that imports have gone up quite a lot due to increased economic activity related to the China-Pakistan Economic Corridor (CPEC), which is not a bad thing.”
Pakistan has been forced to import machinery, mainly from China, for the construction of various CPEC projects.
“What is missing is that export growth hasn’t really gone as expected. The latest information that I received is that exports are starting to pick up again,” Liepach explained.
CPEC has brought massive Chinese investment to Pakistan. The entire project is now valued at $62 billion. Individual projects include transport networks and $33 billion invested in energy infrastructure, hoping to modernize Pakistan’s economy and facilitate growth.
The murder of a senior Chinese executive in what appeared to be a targeted attack in February and growing concerns about terror attacks on CPEC projects have only highlighted fears about doing business in Pakistan.
Tuesday, representatives of China, Pakistan, and Afghanistan met to discuss economic partnership in a seminar titled, “China-Afghanistan-Pakistan: Constructive Engagement for Sustainable Growth.” The event was hosted by the Chinese embassy at the Regional Peace Institute in Islamabad.
Pakistan’s National Security Advisor, Lt. Gen. Nasser Janjua spoke in favor of developing an economic corridor encompassing Afghanistan, China, Iran, and Pakistan. Janjua also referred to war-torn Afghanistan as a ‘wound of the world’ and called for Pakistan and Afghanistan to work together to increase prosperity in the region.
“It is about time that Pakistan and Afghanistan separate politics from the economy. As they say, prosperity is another name of security, we need to foster economic collaboration. We need to implement the seven-point agreement recently agreed upon between Islamabad and Kabul,” he told the delegates meeting in Islamabad.
The national security advisor shared his vision for a shared future, “The world is in Asia today. We have world’s most precious resource – the humans, we have got richest material resources of the world and we have the biggest consumer market. What else do we need? We just need to link the dots and start cooperating with each other for a shared future.”
Janjua also decried the world’s willingness to invest in a war in the region, rather than economic development.
He went on to discuss CPEC and the broader Belt and Road Initiative, “Europe and Asia are already connected and jointly they form Eurasia. We just need to connect China with rest of the world through Pakistan, Afghanistan and Iran. This is where Belt & Road Initiative (BRI) comes into play.”
Chinese Ambassador, Yao Jing, echoed these statements, saying, “Pakistan and Afghanistan are key partners in China’s Belt & Road Initiative. China has been focusing on community development in both the countries as community development is our global focus.”
He added that China’s President President Xi Jinping believes the development of Western China relies on economic partnership with Pakistan and Afghanistan and that China is working with both countries on building trust and economic relations. In order to do so, China has initiated the Trilateral Dialogue for Economic Integration, Foreign Minister’s Dialogue, and Dialogue on Strategic and Counterterrorism Issues.