The Asian Development Bank (ADB) on Thursday forecast that Pakistan''s gross domestic product (GDP) in fiscal year 2006 may slip down to 6.5 percent, reason being high oil prices.
It is worth mentioning that the economic managers have estimated 7 percent GDP growth for fiscal year 2006, while the bank''s forecast in Asian Development Outlook 2005 update released on Thursday states that economic growth may be less than expected.
The update cautions: "If (international oil prices) remain at current level, or go higher, projections for imports, the fiscal deficit, and inflation may have to be revised upward, while any negative impact on the global economy could lead to lower growth of exports."
However, the update praises that Pakistan''s economy was moving ahead on solid footing due to sound macroeconomic fundamentals, enhanced private investment and significant expansion in the public sector development programme.
Amid the generally positive outlook, the high oil price was a lingering threat and may negatively affect Pakistan''s economy, it adds.
However, the ADB says that the large-scale manufacturing (LSM) may grow at a sustainable rate of 11 percent due to positive amendments in tax levied on tradable goods, including exemption of major export industries from the general sales tax (GST). Also, the withdrawal of import duty on raw materials and other supplies will further boost this sector.
About skyrocketing inflation, the bank shows concern and forecasts that in 2006, it will be at 8.5 percent. "Further tightening of monetary policy and the opening up of wheat and other essential food items import will dampen inflationary pressures in FY2006. However, expansionary fiscal policy, high oil prices, and the large monetary overhang may make it difficult to contain inflation," the update states.
Pertaining to agriculture sector growth, the bank forecast that it is likely to decelerate in FY2006, mainly because of the high base set in the previous year.
"It will also be difficult to sustain last year''s record cotton output because of already heavier monsoon rains and greater moisture, which increase crop vulnerability to pests," the update says. "Further, the damage caused by recent floods to standing crops will depress agricultural production." Agricultural output is projected to grow by only 3 percent in FY2006, as against 7.5 percent in FY2005, the highest in nine years.
Exports are expected to post a brisk 15 percent growth in FY2006, due to incentives announced in the current budget, continued modernisation of the textile industry and the ending of the Multi-Fiber Arrangement quotas in January 2005.