ISLAMABAD: Pakistan faces significant economic, governance and security challenges to achieve durable development outcomes, besides unabated energy crisis, which continued to dampen the growth prospects, revealed World Bank report on Pakistan (April 2013). According to the report, faced with some stiff challenges, Pakistan's economy continued to underperform when compared with other economies in the region.
There was no improvement in the security situation; political tensions have grown; the southern provinces were yet again battered by severe floods which impacted agricultural growth and public expenditure. Further, the fiscal situation worsened in FY12 as the overall budget deficit increased to 8.5 percent of GDP - the highest level in two decades, exacerbated by a monetary mode of financing the deficit which kept inflation high (at 11 percent).
According to the report tax collection improved but was waylaid by a sharp decline in non-tax revenue, mainly due to delay in release of Coalition Support Fund (CSF) by the US administration; external vulnerabilities increased as the current account deficit rose to 2 percent of GDP; exports declined by 3 percent, while imports increased by 12 percent.
The report further states capital inflows continued to be weak while debt servicing liabilities, including those to IMF, continued to mount; despite the release of $1.9 billion by the US administration from CSF, net foreign exchange reserves of State Bank of Pakistan have declined by $6 billion over the last 17 months; the rupee remained under severe pressure throughout the year and depreciated by almost 12 percent during this period.
Faced with such an adverse scenario, the preliminary economic growth of 3.7 percent in fiscal year 2012 signifies economy's remarkable resilience. This however was partly a result of a strong increase in private consumption caused by continued and robust increase in workers' remittances (increased by 18 percent). According to the report, the persistence of conflict in the border areas and security challenges throughout the country is a reality that affects all aspects of life in Pakistan and impedes development. A range of governance and business environment indicators suggest that deep improvements in governance are needed to unleash Pakistan's growth potential.
The country has faced significant political, economic and constitutional challenges over the past five years. These include continuing pressures of coalition politics, militancy crises, sectarian tensions and consequent violence in many parts, recurring natural disasters like the 2010 and 2011 floods, implementation challenges of devolution of increasing responsibilities to the provinces, and a difficult economic situation. In recent months, political tensions and uncertainty has increased ahead of general elections, nevertheless, the democratic process has proved resilient over the past five years, maintained the report.
Despite the worrying state of education and health, especially amongst the poor, the resource allocation as a percentage of the GDP remained low. Pakistan is ranked as one of the lowest spenders on education and health in the region (at about 2 percent of GDP). At the current rate of progress, it will be difficult for Pakistan to meet the MDG targets on health and education by 2015. According to the report, Pakistan saw a decline in poverty trends, with the poverty rate falling from 34.5 percent in 2001/02 to an estimated 17.2 percent in 2007/08. Over the past few years there have been signs that poverty levels may have further decreased, despite the downturn in the economy, floods and inflation.