ADB warns of risks to economy
By Asad Cheema

ISLAMABAD—The growing current account deficit, continuing high inflation and the emerging power shortages are potential risks to the country’s medium-term economic prospects, warns the Asian Development Bank (ADB).
“Any deterioration in the law and order situation could also adversely affect medium-term growth further,” says the latest ADB Economic Update finalised in late October.
It added that the end of China specific safeguards imposed by the US and the European Union (EU) against textiles and clothing (T&C) imports in 2008 may further weaken Pakistan’s textile export prospects.
“The current account deficit is projected to increase to $8.5bn, or 5.9% of GDP”. A possible further increase in oil prices, in case of sanctions against Iran for example, could also hurt Pakistan’s economic prospects, the report feared.
With pro-growth government policies, continuous increase in the public sector development programme, and projected increase in total investment, the medium-term outlook for the economy is positive and the growth target of 7-8% looks feasible. The real GDP growth in 2006-07, the update said, is projected at 7%.
The main commodity producing sectors are expected to pick up and the services sector is likely to maintain its robust growth. The projected high growth is underpinned by a substantial increase in investment last year and further increase in investment forecast for the current financial year.
Expected stabilisation in oil prices will also help growth. Substantial public sector investment in irrigation in the last several years and a sharp increase in import of agricultural machinery last year is expected to boost agriculture output, as well the duty-free import of tractors, enhanced subsidy on fertiliser, and the new package of incentives for the livestock sector, all announced in the 2006-07 budget. Heavier than normal rains in the monsoon season is expected to help the water-intensive rice and sugarcane crops.
Greater moisture in the soil will also improve the prospects of wheat crop. “However, the cotton crop could be adversely affected by greater moisture, which makes the crop more vulnerable to pest attacks. On balance, the agriculture sector is projected to growth by 4.5% in 2006-07,” the update believed.