Growth prospects promising

Growth prospects for Pakistan economy are fairly promising and an increase to 7 percent, or even higher, in 2007 is expected based on strong recovery of agricultural sector and improved performance of manufacturing sector, Sarfraz Khan Qureshi, Chief Executive of Innovative Development Strategies, said here on Wednesday.
He was addressing a press conference on the occasion of the launching of 'Economic and Social Survey of Asia and the Pacific' (Escap). The Escap survey stated that large-scale manufacturing grew by 9 percent, down from 15.6 percent in the previous year. Services improved from 8 percent in 2005 to 8.8 percent in 2006, and investment hit a record high of 20 percent of GDP.
It added that to sustain future growth rate of 7-8 percent, more investment was needed to develop human resources and physical infrastructure. Highlighting the major problems to the economic growth of the country, he said that increasing population, high inflation and poverty were the main obstacles.
"Striking an appropriate balance between promoting economic growth and price stability remain as challenge because inflationary pressures accompany rapid economic expansion. Moreover, the current account deficit will have serious negative effect on the balance of payments", he added.
The survey 2007 states that Pakistan's economy grew at an average of more than 7.5 percent over the last three years, although it moderated to 6.6 percent in 2006. The slowdown in 2006 reflected the extraordinary surge in oil prices, the devastation caused by the October 2005 earthquake, and adverse weather conditions.
Agriculture grew at just 2.5 percent in 2006, down from 6.7 percent in 2005, with negative downstream impacts on the textile and sugar industries. Large-scale manufacturing grew by 9 percent, down from 15.6 percent in the previous year. Services improved from 8 percent in 2005 to 8.8 percent in 2006 and investment hit a record high of 20 percent of GDP.
It added that most countries in South Asia felt inflationary pressures in 2006 on the back of high oil prices. Consumer prices in Pakistan rose to 7.9 percent as a result of higher aggregate demand compounded by shortages of principal commodities.
Food prices also rose significantly, hurting the poor particularly. Prices of some essential food items such as sugar, pulses, milk, beef, mutton and some vegetable items witnessed sharp increases.
Most of the items are part of minor crops, livestock and dairy products. The survey stressed that these sub-sectors of agriculture should be given due importance as they play an important role in stabilising overall inflation in general, especially food inflation.
To contain inflation, most countries in the subregion pursued tighter monetary policies. In Pakistan, the Government's anti-inflationary policies included effective managing supply and demand for essential consumer goods and raw materials by means of a liberal imports policy and strengthening the public distribution system through Utility Stores.
The survey added that in fiscal year 2006, Pakistan's fiscal deficit was estimated at 4.2 percent of GDP, higher than the 3.3 percent of GDP in the previous year. The higher deficit in 2006 owed to an increase in expenditure following the October 2005 earthquake. Following the debt reduction strategy, the public debt-to-GDP ratio fell from 85 percent in June 2000 to 65 percent by June 2005 and to 59 percent by June 2006.
In Pakistan, exports and imports continued to grow at double-digit rates in 2006. The trade deficit widened to a record $8.4 billion in 2006, with 45 percent of the increase due to the higher import bill for crude oil and petroleum products. Imports of raw material and machinery also increased sharply.
The current account continued to benefit from large remittances from expatriate workers, estimated at $4.6 billion in 2006. On the financial account, foreign direct investment, at $3.5 billion in 2006, was the highest ever recorded.
Reform needs to be maintained to sustain high growth and rapid poverty reduction. With fiscal adjustment still a challenge, more progress is needed in tax collection and resource mobilisation to reduce large budget deficits.
This will allow redirecting resources from servicing public debt to economic development and social programmes, at the same time creating an enabling environment for private investment.
Increase in consumer prices is a genuine concern in most countries in South Asia. Striking an appropriate balance between promoting economic growth and price stability remains a challenge because inflationary pressures accompany rapid economic expansions.
As the current account deficit is becoming a serious concern, this will have implications for the balance of payments. If oil prices remain high, there will be need to devise ways to contain the current account deficits, the survey said.
Sarfraz said that the Asia-Pacific region is losing $42 billion to $47 billion per year because of the lower labour force participating rates of women and another $16 billion to $30 billion per year only because of gender gaps in education resulting in lower productivity of women.
"The results in Pakistan regarding this issue are encouraging as it is among the six countries in entire Asia having shares of women in parliament equal to or exceeding 20 percent", he said.