The year 2017 starts with hopes and expectations for interesting upcoming challenges and outlook for not only Pakistan’s economy but also for foreign policy makers as US President-elect Donald Trump takes charge on January 20, 2017.
The experts believe that Pakistan’s growth would continue to accelerate, reaching 5 per cent and 5.4 per cent till 2018. They believe CPEC with potential of change Pakistan outlook would resolve the country’s chronic power and infrastructure backlog issues besides generating massive boost in trading activity, with Gwadar becoming the gateway to all major sea routes.
With general elections less than 18 months away, they experts expect the government to adopt an expansionary fiscal policy, where one can anticipate increased disbursement towards Public Sector Development Programme (PSDP) with greater focus on infrastructure related projects. They were of the view that the government may lose fiscal discipline – raising the possibility of running a higher fiscal deficit and increasing inflation.
The Pakistan Stock Exchange (PSX) extended its stellar run in 2016 as well, as the benchmark KSE-100 index notched up an impressive 46 per cent return for the year – only behind Brazil and Russia.
On the demand side, the experts see growth to be primarily driven by public and private consumption, supported somewhat by a moderate increase in investment. They expect that Pakistan’s low investment to GDP ratio would increase following infrastructure projects under CPEC and other public investment. These projects, if delivered on time, are expected to accelerate growth in the domestic construction industry and expand electricity generation. Improved electricity availability would, in turn, support growth in the industry and services sectors.
On the supply side, the experts believe that services sector, which comprises more than half of the economy to be the primary source of growth, is expected to grow by 5.6 percent in fiscal 2017.
After a lean performance in fiscal 2016, the agriculture sector is expected to recover sufficiently to grow at 2.7 per cent in fiscal 2017, while the industrial sector is being forecast to grow at 5.7 per cent.
On current account deficit widen from 1.1 per cent of GDP in 2016, the experts forecast it to go on to 1.7 per cent in fiscal 2017. The key contributor to this would be a widening of the trade deficit as of moderate growth in exports and likely higher growth in imports following the increased economic activity and a marginal rise in international oil prices. However, ongoing remittance inflows will support the current account. It is also expected that FDI flows will strengthen due to the accelerated implementation of CPEC projects. Therefore, like previous years, foreign exchange reserves are projected to increase.
The experts projected 4.2 per cent sour in fiscal deficit in fiscal 2017, 0.4 percentage point lower than the revised estimates of fiscal 16, which already represented the lowest deficit in nine years.
This decline, they said, in consolidated fiscal deficit was primarily driven by an increase in government tax revenues (both federal and provincial) and a further rationalisation of government current expenditures including subsidies. The provinces are also expected to supply a small surplus to support this effort. Federal and provincial governments are, however, expected to continue increasing their development expenditures. They said that inflation had already bottomed out. Projected increases in economic activity and an expected marginal rise in global oil prices would push domestic prices up therefore, they say, inflation would grow from 2.9 per cent to 4.6 per cent in fiscal 2017.
