Publication: Pakistan Development Update, October 2015

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Pakistan’s economy posted GDP growth of 4.2 percent in FY2014/15 compared to 4.0 percent in the previous year, but below the 5.1 percent targeted growth envisaged for FY2014-15 in the annual plan. On the demand side, investment and government consumption posted strong growth. Private consumption was supported by record high remittances in the order of US$18.7 billion in FY2014/15. The share of investment in GDP remains relatively small, at 15.1 percent of GDP, about half of the South Asian average at 30 percent. More worryingly, private investment as a share of GDP has been declining and stood at 9.7 percent of GDP in FY2014/15. This low investment has implications for Pakistan’s long term growth potential that has been on a clear declining long run trend as discussed in special section three in this issue. Exports declined in FY2014/15 and this decline was broad based, a result of both low international prices of some of Pakistan’s export products as well as weak external demand. Textiles, which account for about half of all exports, posted a significant decline. Imports also declined, mainly due to lower international oil and commodity prices, although to a lesser extent than exports. Non-oil imports increased significantly, in particular metals, food, machinery and wood and paper products. Fiscal consolidation will require strong tax revenue efforts by the government as well as gradual phasing-out of energy-related subsidies and of reduced support to loss-making SOEs. Efforts to tighten fiscal policy will also need closer coordination with the provinces, and ensuring that progress in the country’s decentralization effort better aligns the province’s responsibilities with the increased resource envelop that resulted from the 7th NFC award. Efforts to prevent major shocks to the government’s fiscal stance should also include reducing the fiscal risks of the frequent natural disasters affecting Pakistan, an issue discussed in detail in special section five. On the external side, it will be important to increase efforts to attract more FDI from the current low levels, by improving the overall business climate and address regulatory weaknesses at the sectoral level that may be affecting the country’s ability to attract investment. Continued implementation of the government’s reform agenda to address structural bottlenecks, in particular in the energy sector, will also be crucial to be able to attract more investment.
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World Bank. 2015. Pakistan Development Update, October 2015. © Washington, DC. License: CC BY 3.0 IGO.
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