The economy of Pakistan has shown signs of improvement in the year 2011 as the economic activity in the country became relatively firm during the second half of the last year, local media reported on Thursday.
Quoting a World Bank report, local Paper Dawn reported that Pakistan's industrial production growed at a robust 32.1 percent annualized pace during the three months ending in October, after falling at 9.1 and 10.1 percent during the first and second quarters, respectively.
Pakistan is South Asia's second largest economy, representing about 15 percent of regional GDP. Though Pakistan's economy continued to lag behind other nations in the region but it improved individually.
Part of the strengthening in growth reflects base effects due to the widespread flooding that had hampered activity in the second half of 2010. Since the floods occurred in July and August 2010, GDP growth on a fiscal year basis (ending June-2011) slowed to 2.4 percent.
The report notes that Pakistan's weak growth outturns are also tied to worsening security conditions, accompanied by greater political uncertainty and a breakdown in policy implementation.
The report also noted that infrastructure bottlenecks, including disruptions in power delivery had a negative effect on the economic activity.
Country's export rate strengthened particularly in the first half of 2011, led by textiles that surged 39 percent in the first half of the year. However, Pakistan's export volume growth saw a sharp fall-off in October and overall export volumes fell to a minus 46 percent in the three months ending October.
Along with an upswing in worker remittances inflows, robust exports have supported Pakistan's external positions and contributed to an improvement in the current account from a deficit of 0.9 percent of GDP in 2010 to a surplus of close to 0.5 percent of GDP in the 2011 calendar year.
The World Bank noted that monetary tightening in Pakistan brought about positive real lending rates in early 2011 as well, the first time since late 2009.
The bank pointed out that for South Asian nations, including India and Pakistan, domestic crop conditions and price controls are more important determinants of domestic food price inflation. These factors have contributed to inflationary pressures in the region in 2011.
Regional monetary policy authorities face several challenges in reducing inflation.
More recently, currency devaluation has contributed to inflation as well. In Pakistan, monetary authorities have also been monetizing the deficit, complicating the efficacy of other monetary policy efforts to reduce inflation.
A key factor working against monetary policy efforts is the overall stance of fiscal policy, which despite some consolidation, remains very loose.
Lower revenue growth has contributed to larger fiscal deficits in Pakistan. Terms of trade losses are estimated at about 1.9 percent of GDP for the region in aggregate.
Remittance inflow to Pakistan rose by an estimated 25 percent in 2011, partly in response to the widespread flooding in the second half of 2010.
International reserve positions in South Asia have generally improved since mid-2008. Latest foreign currency holdings were equivalent to at least three-month of merchandise imports in Pakistan./.