ADB predicts improvement in GDP growth

ISLAMABAD - Asian Development Bank, in its recent report, forecasted that Pakistan’s GDP growth would modestly improve to 3.0 percent in the ongoing year of 2010 due to recovery in the manufacturing sector.
According to “Asian Development Outlook 2010 (ADO 2010)”, released on Tuesday, the recovery in manufacturing sector is due to higher production of the cement products in the local market and stronger domestic demand for automobiles in the first half of 2010. Textiles manufacturing, however, has continued to show decline on account of the lower cotton availability, electricity and gas shortages and poorer relative product competitiveness in the international markets.
The ADO further said that Pakistan’s economic prospects were predicated on the basis of a successful completion of the current IMF programme by end-2010; a gradual improvement in the security situation; a phased reduction in electricity shortages, as tariffs meet cost of supply and new power plants were commissioned; sustained implementation of fiscal reforms, particularly for tax and administration; a gradual economic recovery in the main trading partners and political stability.
The GDP growth is expected to reach about 4.0 percent in the fiscal year 2011, as the private sector investment picks up following gradual improvement in the security situation and fewer electricity shortages, as public investment accelerates, supported by an improved fiscal situation with the Value-Added Tax (VAT) and other administrative tax reforms from 1 July 2010.
The modest growth projected for 2010 will make it hard for the Federal Board of Revenue to achieve its revenue target. However, higher oil and electricity prices (by way of larger customs revenues and sales tax receipts) will compensate somewhat for lower direct tax collections.
Yet with higher than budgeted defence spending, the fiscal deficit target of 4.9 percent of GDP for 2010 will be missed, and the Government is now targeting a deficit of 5.1 percent. But this too could be overshot in case of further shortfalls in tax and non-tax revenues.
The ADO said that inflation in 2010 is projected at 12 percent from its peak of the previous fiscal year. Looking ahead, domestic oil prices will increase in line with international prices. Similarly, phased increases in electricity tariffs will also contribute to maintaining momentum in inflation during the fiscal year.

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