ADB expresses concerns on Pakistan’s economic condition

Karachi: The Asian Development Bank (ADB) has expressed concerns on the economic condition of Pakistan in its latest report.

According to Alfalah Securities Limited, ADB has stated that Pakistan’s economy is mainly affected by structural problems like energy crisis, decline in investment, persistently high inflation, and security issues added by severe floods. The country’s budget deficit is high due to substantial subsidies and losses at state owned enterprises, and tax revenue below target. It has also stated that the growth outlook will stay modest unless the outstanding problems are resolved.

The uncertainties over non-tax revenue and higher than targeted current expenditure point to a budget deficit in excess of the 4.7% of GDP target are likely to add to the adversities. The external accounts are increasingly fragile, with scant cushion from the financial and capital accounts. Lower prices for key export commodities, particularly cotton, combined with higher import prices, pushed the current account even though the strong growth in remittances continues to offset a widening trade balance. Growth in export receipts slowed, as cotton prices declined and export industries were hit by increased load-shedding. Imports are inching higher largely reflecting substantial payments for oil. The services account showed similar signs of deterioration, with services exports contracting by 22.0% as inflows from the US Coalition Support Fund declined.

Power is the main constraint for economic growth, as loadshedding intensifies and becomes less predictable. Estimates from the Planning Commission suggest that losses arising from power and gas shortages held down GDP growth. The power tariff and collections being below cost recovery, is a major deterrent to investment for capacity expansion in the sector. State-owned enterprises represent a heavy drain on fiscal resources. Pakistan Railways, Pakistan International Airlines, and Pakistan Steel Mills have incurred intense losses for the past several years. Therefore, as per ADB the country faces serious challenge of improving the overall economic efficiency and making the state owned enterprises commercially viable entities.