Pakistan plans to boost growth to an eight-year high as the government of Prime Minister Nawaz Sharif battles electricity shortages that have undermined South Asia’s second-biggest economy.
The economy will expand 5.1 percent in the year starting July from an estimated 4.1 percent in the outgoing year, Finance Minister Ishaq Dar said in an interview in Islamabad yesterday. The minister is scheduled to unveil the federal budget in Parliament today.
Pakistan must revive investment and growth to be eligible for payouts under a $6.6 billion facility approved by the International Monetary Fund in September. While the loan staved off a balance-of-payments crisis, Sharif faces Asia’s second-fastest inflation, a Taliban insurgency and power outages.
The government will improve GDP growth in the 12 months starting July 1 by reducing electricity shortages that curbed expansion by as much as 1.75 percentage points, Dar said yesterday. Clearing debt between state-run energy companies has helped add nearly 1,700 megawatts of electricity to the national grid.
Economic expansion in the 12 months ending June 30 was led by growth of 5.34 percent in the industrial sector, Dar said at a news conference yesterday while releasing the annual Economic Survey. Farm growth was 2.12 percent compared with 2.88 percent a year ago because of lower output of cotton, pulses and oilseed.
Sharif, who just completed one year in office, plans to add as much as 16,564 megawatts of electricity to the grid during his five-year term, according to the survey. Sharif last week approved allocations for a dozen power projects, including Diamer Bhasha Dam and Dasu Hydro power projects, which will together generate 9,000 megawatts of electricity. Both projects will be commissioned by the next government.
Sharif’s election victory last year marked the first time a democratic government succeeded another that had completed its full five-year term. The political stability and improving external position may trigger a credit rating upgrade, Moody’s Investors Service said last month. The company rates Pakistan Caa1, seven levels below investment grade.
The IMF board will review a report on Pakistan’s progress later this month, following which it may release a $550 million loan installment. The board was “encouraged” by progress, the Washington-based lender said in May. A partially disbursed $11.3 billion facility expired in September 2011 after Pakistan failed to meet conditions.
Pakistan is targeting currency reserves of $15 billion by September, up from a five-year low of $8.12 billion in November 2013. It raised $2 billion in April through its first overseas sovereign bond sale in seven years, another $1.13 billion from the auction of mobile-phone spectrum licenses, and is looking to market more than $1 billion of Islamic bonds by the end of 2014.
Additional inflows helped trim the budget gap from a two-decade high to below 6 percent of GDP this year, lower than the 6.3 percent IMF target, Dar said. The government plans to curb the deficit further in the next fiscal year, he said.
The Pakistani rupee has gained 6.8 percent this year, the best performance among 12 Asian currencies tracked by Bloomberg.