By: Dr Hafiz A. Pasha
What the new year holds for the country?
he year 2018 ended with a hangover of uncertainty on the economic, political and social fronts. Consequently, the outlook for 2019 is seen with some trepidation. Will the incipient domestic financial crisis finally be overcome or will there be a veritable collapse on the economic front? Will the political temperature cool down and joint efforts made to introduce legislation for implementation of many of the needed structural reforms? Will the process of accountability proceed in a just and proper way and lead to visibly less corruption? These are some key elements characterizing uncertainty about the prospects for 2019.
However, before the domestic economy is focused on, there is a need to look at the likely global and regional developments. Pakistan’s economy will be directly impacted by the prospects for global trade, the trend in oil prices, FDI and other capital flows. The IMF’s World Economic Outlook and other international institutions present a mixed perspective on the global economy in 2019. They expect the growth rate to moderate somewhat; global trade to be impacted negatively by US-Sino trade tensions; exit of funds from emerging capital markets and higher interest rates. The expectation regarding oil is that it will rise from the present level to $65 to $70 per barrel due to some supply cuts by OPEC and Russia, but will remain below the level attained in the middle of 2018. The regional situation may, however, improve with peace overtures by the USA in Afghanistan.
Turning to the domestic economy, it has experienced a substantial slowdown in the latter half of 2018. Industrial production has shown negative growth and many of the dynamic industries in 2017 have lost their buoyancy. The output and planting of major crops have been constrained by the big increase in fertilizer prices and water shortage. Exports have been stagnant despite the large depreciation in the value of the rupee. Construction activity has ebbed because of the big cut in development spending and building restrictions and so on.
Combined with the slowing down of economic activity, there has been an upsurge in the rate of inflation. The Wholesale Price Index is already showing a double-digit rate of inflation and the Consumer Price Index is slowly catching up with a time lag. The fundamental question is whether the economy is now in the grips of ‘stagflation’ or as the months elapse in 2019, the economy will regain some momentum and the price level will stabilize?
The process of economic recovery in 2019 will hinge crucially on an improvement in the rate of private investment and in exports. Also, a positive stimulus could be provided if the Budget for 2019-20 in June this year will restore the level of public development spending, especially in key areas like water, power and CPEC projects.
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