Inflation and account deficit threats to economy: EIU

Inflation, a widening current-account deficit and internationally high oil prices remain the biggest threats to Pakistan economy, said The Economist Intelligence Unit (EIU) UK. The Economist Intelligence Unit (EIU) on Saturday has issued a detail report on Pakistan''s economy.
In which they have forecast that real GDP growth will slow from 6.6 percent during the current fiscal year to 6 percent in 2007-08, largely owing to a slowdown in the services sector.
Growth will be driven by the continued expansion of textile production and other manufacturing output. The strength of the industrial sector will in turn stimulate growth in service output, particularly in the commerce, trade and transport sub sectors, the report added.
Agricultural growth will also remain fairly healthy throughout the forecast period and the improving outlook for the monsoon has resulted in forecast for real GDP in 2006-07 being revised up from 6.4 percent in October to 6.6 percent currently, as growth in the agricultural sector is now expected to be more buoyant in that year.
Inflationary pressures and a widening current-account deficit remain the biggest threat to economic growth. Monetary tightening by the central bank in July will assist in controlling consumer price inflation, report said.
Year-on-year inflation rose from a low of 6.2 percent in April 2006 to 8.9 percent in August, while it then remained above 8 percent for November and December but fell sharply in January to 6.6 percent.
The EIU forecast said that a slowdown in economic growth and an improvement in food supplies will contribute to a further slowing of inflation in the forecast period. On balance, consumer prices are expected to rise by an average of 7.4 percent in 2007, with inflation falling to 5.5 percent in 2008.
Report said that Pakistan''s economy is expanding rapidly, but international oil prices and domestic inflation are high at present, and could undermine macroeconomic stability and economic growth prospects.
Action to stem the rising trend in consumer price inflation came late and this lack of timely action, coupled with an overheating economy, is the main source of economic policy risk in 2007-08.
Nevertheless, Pakistan''s policymakers have in the past few years created an environment within which the private sector has begun to thrive. These measures include substantial privatisation, reforms in the banking and utility sectors and efforts to reduce red tape.
The EIU quoted that the World Bank''s doing Business reports has said that Pakistan rose to 74th position out of 175 from 126th out of 151 the previous year, with the authors noting that customs and tax reforms had benefited business.