Economy faces challenge of trade deficit: WB
By Asad Cheema

ISLAMABAD—Pakistan has achieved rapid growth which produced a sharp fall in poverty of 5%-10%, an increase in investment from 18% to over 20% of GDP, a great acceleration in foreign trade and reduction in public debt from 85% of GDP in 1999-2000 to 55% at the start of 2006-07.
Praising economic performance of Pakistan the Country Director of World Bank for Pakistan John W Wall said here on Friday “Pakistan’s economy has built up a strong momentum of growth”. “Pakistan’s economy will add another year of over 6% growth for the fourth year in a row. This is a remarkable achievement particularly given the major shocks of a big oil price hike and the October 2005 earthquake. “, he added.
He said Pakistan Government has put in place a sound framework for fiscal management, the “Fiscal Responsibility and Debt Limitation Bill and” Pakistan’s credit ratings have steadily improved, allowing the Government to return to the capital markets to raise resources. John W Wall said investor confidence has been restored resulting in private capital inflows through remittances, privatization proceeds and portfolio investment.
These have allowed private foreign saving to grow by six percentage points of GDP over the last four years. Official transfers have also increased as The World Bank, Asian Development Bank, and Islamic Development Bank and Japan, UK, US and others countries, he said adding, all have made available dramatically larger financial assistance to Pakistan for its long term development.
He said managing this faster growth has given Pakistan very different and much better quality problems than at the beginning of this decade. Then the problems were low growth, high poverty, high debt and stagnant foreign trade, now the problems are those of keeping the monetary fiscal and foreign payment accounts in balance while all the former problems are rapidly improving.
Inflation is in single digits and falling, from a spike of over 10% to 7.5% or less, World Bank Country Director said, interest rates have risen and the growth of credit to the private sector is moderating, indicating tighter monetary policies. Further reductions in inflation may require even tighter credit policies.
He said expenditure pressures, including coping with the earthquake reconstruction of over half a million houses and much higher development expenditures on much needed infrastructure, have increased. Tax revenues have grown faster than GPD over the past two years, although they are still low compared to the economy’s expenditure needs, he said adding nevertheless the overall fiscal stance also has been tight and the deficits so far are close to their targets.
John said the rapid economic growth led to a very healthy growth in foreign trade, resulting in large trade and current account deficits. These have been financed with mostly non debt creating capital inflows’ official transfers, privatization and foreign investment.