Pakistan’s economy in fiscal year (FY) 2019, which ended on 30 June, is showing signs of recovery as the government’s fiscal consolidation and austerity measures to address the structural weaknesses started to take effect. However, the growth rate moderated to 3.3% during the period, reflecting persistent macroeconomic imbalances and heightened external challenges, according to the Asian Development Outlook (ADO) Update 2019.
The update of the Asian Development Bank’s (ADB) flagship annual economic publication notes the current account deficit eased from 6.3% of gross domestic product (GDP) in FY2018 to 4.8% in FY2019. The trade deficit narrowed by almost 11.5% to $28.2 billion as rupee depreciation drove down merchandise imports by 7.4%, particularly for goods other than petroleum. Despite currency depreciation in real effective terms, merchandise exports declined by 2.2%, partly because low cotton production constrained textile exports. Workers’ remittances stirred from 3 years of near stagnation to grow by 9.7%, lending support to the current account.
“Pakistan has done well in stabilizing the economy in the face of strong challenges by taming the spiraling current account deficits and through robust implementation of reforms to improve governance and rejuvenating country’s competitiveness,” said ADB Country Director for Pakistan Ms. Xiaohong Yang. “Pakistan needs to press ahead with macroeconomic and structural reforms; revitalizing public sector enterprises; improving revenue collection, energy, and water security; and leveraging improved security and regional cooperation opportunities to secure the hard-won gains and promote growth.”
The financial account surplus narrowed considerably in FY2019 by 16.2%. The $2.3 billion fall was mostly accounted for by $1.8 billion less in foreign direct investment owing in part to policy uncertainty but also to the winding down of energy and infrastructure projects in the People’s Republic of China (PRC)–Pakistan Economic Corridor. However, notwithstanding large bilateral financing received from the PRC, Saudi Arabia, and the United Arab Emirates, gross foreign exchange reserves fell by $2.5 billion to $7.3 billion at the end of June 2019, or cover for 1.7 months of imports.
Other notable challenges included a 24% depreciation of Pakistani rupees against the US dollar in FY2019 as the authorities moved toward the adoption of a flexible exchange rate determined by the market, after having defended an overvalued rupee in recent years. Inflation trended substantially higher, from an average of 3.9% in FY2018 to 7.3% in FY2019, mainly reflecting currency depreciation and a considerable increase in domestic fuel prices. Average food inflation reached 4.6%, partly because of the poor harvest, and nonfood inflation accelerated to 9.2%. To keep policy rate positive in real terms, the State Bank of Pakistan, the country’s central bank, raised its policy rate by a cumulative 575 basis points to 12.25% at the end of FY2019, and by another 100 basis points to 13.25% in July 2019.
On the supply side, all sectors contributed substantially less to GDP growth than a year earlier. Growth in agriculture decelerated from 3.9% to 0.8% as water shortages meant smaller harvests of major crops. Industry growth fell markedly from 4.9% to 1.4% as demand weakened. Large-scale manufacturing reversed 5.1% expansion to fall by 2.1%, with contraction almost across the board, while construction dropped by 7.6%. Exceptional 40.5% growth in electricity production was registered as new generation projects reached completion, which fully accounted for industry growth. With marked weakening in agriculture and industry, growth in services slowed from 6.2% to 4.7%.
On the demand side, private consumption, accounting for 82% of GDP, contributed 3.1 percentage points to growth despite higher inflation and borrowing costs. Public consumption, edging up to the equivalent of 12% of GDP, contributed 1.0 percentage point. Meanwhile, contraction in gross fixed investment trimmed growth by 1.3 percentage points, mostly reflecting significantly reduced public investment as the government cut development spending.
“Pakistan needs to continue efforts to stabilize and protect the economy against external risks, rising global prices, rising debt servicing, and continued losses of public sector enterprise,” said Ms. Yang.
The report notes that to restore macroeconomic stability, the government plans to catalyze significant international financial support and promote sustainable and balanced growth under a 3-year economic stabilization and reform program with the International Monetary Fund (IMF). Fiscal consolidation under the program aims to reduce the large public debt while expanding social spending, establishing a flexible exchange rate regime to restore competitiveness, and rebuilding official reserves. The IMF economic reform program envisages a multiyear strategy for revenue mobilization to pare public debt to a sustainable level. The budget assumes tax revenue increased to equal 14.3% of GDP. With non-tax revenue projected at 2.3% of GDP in FY2020, total revenue is expected to increase to 16.6% of GDP.
Given the need for the authorities to address sizable fiscal and external imbalances, the economy is expected to slow further, with GDP growth projected at 2.8% in FY2020. Fiscal adjustments are expected to suppress domestic demand, and demand contraction will keep growth in manufacturing subdued. However, agriculture is expected to recover from weather-induced contraction this year, with major incentives in the government’s agriculture support package included in the budget for FY2020.
COVID-19 Epidemic Poses Greatest Threat to Cambodia’s Development in 30 Years
The COVID-19 pandemic is hitting Cambodia’s main drivers of economic growth—tourism, manufacturing exports, and construction—which together account for more than 70 percent of the country’s growth and almost 40 percent of paid employment. As a result, the economy in 2020 is expected to register its slowest growth since 1994, contracting by between -1 percent and -2.9 percent, according to Cambodia in the Time of COVID-19, the World Bank’s latest Economic Update for Cambodia.
Poverty in 2020 could increase among households involved in key sectors like tourism, construction, trade, manufacturing and the garment industry by between 3 to 11 percentage points higher than at baseline, or in the absence of COVID-19. The fiscal deficit could reach its highest level in 22 years.
The collapse of growth drivers has hurt economic growth and put at least 1.76 million jobs at risks. The report also warns that capital inflows are tapering off, which in turn is triggering the easing of real estate market prices, likely ending the construction boom. With the current large outstanding credit to the construction, real estate, and mortgage sector, nonperforming loans could rise.
In response to the COVID-19 shock, the report recommends policy options that aim at providing urgent economic relief and public health protection in the immediate term, underpinning an economic recovery in the short term, and fostering macro-fiscal and social resilience in the medium term.
“The global shock triggered by the COVID-19 pandemic has significantly impacted Cambodia’s economy,” said Inguna Dobraja, World Bank Country Manager for Cambodia. “The World Bank is committed to helping Cambodia deal effectively with the COVID-19 crisis and strengthen the economy for recovery and future resilience.”
The report also includes a special focus section on the importance of quality of education as a key to human development and sustainable growth in Cambodia. Spending on education in nominal terms nearly tripled from $343 million in 2014 to $848 million in 2019, with a significant portion of that increase going to teachers’ salaries. However, achieving education quality in public schools remains a critical challenge.
The special focus looked at two school models—New Generation School and School Based Management—because they have shown promising results in education quality. Among the important factors contributing to improved student learning outcomes in these two models are giving schools a level of autonomy to manage operations along with higher accountability, use of performance-based management, and emphasis on teacher quality.
The special focus also highlighted key policy recommendations to improve the quality of education in Cambodia such as strengthening accountability in public schools, linking salary increase and promotion to performance, and further upgrading the capacity and quality of teachers.
The Cambodia Economic Update is a biannual report that provides up-to-date information on short- and medium-term macroeconomic developments in Cambodia.
COVID-19 Intensifies the Urgency to Expand Sustainable Energy Solutions Worldwide
Despite accelerated progress over the past decade, the world will fall short of ensuring universal access to affordable, reliable, sustainable, and modern energy by 2030 unless efforts are scaled up significantly, reveals the new Tracking SDG 7: The Energy Progress Report released today by the International Energy Agency (IEA) the International Renewable Energy Agency (IRENA), the United Nations Statistics Division (UNSD), the World Bank, and the World Health Organization (WHO).
According to the report, significant progress had been made on various aspects of the Sustainable Development Goal (SDG) 7 prior to the start of the COVID-19 crisis. This includes a notable reduction in the number of people worldwide lacking access to electricity, strong uptake of renewable energy for electricity generation, and improvements in energy efficiency. Despite these advances, global efforts remain insufficient to reach the key targets of SDG 7 by 2030.
“Renewable energy is key to achieving SDG 7 and building resilient, equitable and sustainable economies in a post COVID-19 world. Now more than ever is the time for bold international cooperation to bridge the energy access gap and place sustainable energy at the heart of economic stimulus and recovery measures. IRENA is committed to scale up action with its global membership and partners to channel investment and guide policy intervention in pursuit of sustainable development for all humankind,” said Francesco La Camera, Director-General of the International Renewable Energy Agency (IRENA).
The number of people without access to electricity declined from 1.2 billion in 2010 to 789 million in 2018, however, under policies that were either in place or planned before the start of the COVID-19 crisis, an estimated 620 million people would still lack access in 2030, 85 percent of them in Sub-Saharan Africa. SDG 7 calls for universal energy access by 2030.
Other important elements of the goal also continue to be off track. Almost 3 billion people remained without access to clean cooking in 2017, mainly in Asia and Sub-Saharan Africa. Largely stagnant progress since 2010 leads to millions of deaths each year from breathing cooking smoke. The share of renewable energy in the global energy mix is only inching up gradually, despite the rapid growth of wind and solar power in electricity generation. An acceleration of renewables across all sectors is required to move closer to reaching the SDG 7 target, with advances in heating and transport currently lagging far behind their potential. Following strong progress on global energy efficiency between 2015 and 2016, the pace has slackened. The rate of improvement needs to speed up dramatically, from 1.7 percent in 2017 to at least 3 percent in coming years.
Accelerating the pace of progress in all regions and sectors will require stronger political commitment, long-term energy planning, increased public and private financing, and adequate policy and fiscal incentives to spur faster deployment of new technologies An increased emphasis on “leaving no one behind” is required, given the large proportion of the population without access in remote, rural, poorer and vulnerable communities. The 2020 report introduces tracking on a new indicator, 7.A.1, on international financial flows to developing countries in support of clean and renewable energy. Although total flows have doubled since 2010, reaching $21.4 billion in 2017, only 12 percent reached the least-developed countries, which are the furthest from achieving the various SDG 7 targets.
The five custodian agencies of the report were designated by the UN Statistical Commission to compile and verify country data, along with regional and global aggregates, in relation to the progress in achieving the SDG 7 goals. The report presents policymakers and development partners with global, regional and country-level data to inform decisions and identify priorities for a sustainable recovery from COVID-19 that scales up affordable, reliable, sustainable and modern energy. This collaborative work highlights once more the importance of reliable data to inform policy-making as well as the opportunity to enhance data quality through international cooperation to further strengthen national capacities. The report has been transmitted by SDG 7 custodian agencies to the United Nations Secretary-General to inform the 2030 Agenda for Sustainable Development’s annual review.
Key highlights on SDG7 targets
Please note that the report’s findings are based on international compilations of official national-level data up to 2018 while also drawing on analysis of recent trends and policies related to SDG 7 targets.
Access to electricity: Since 2010, more than a billion people have gained access to electricity. As a result, 90 percent of the planet’s population was connected in 2018. Yet 789 million people still live without electricity and despite accelerated progress in recent years, the SDG target of universal access by 2030 appears unlikely to be met, especially if the COVID-19 pandemic seriously disrupts electrification efforts. Regional disparities persist. Latin America and the Caribbean, Eastern Asia and South-eastern Asia are approaching universal access but Sub-Saharan Africa lags behind, accounting for 70 percent of the global deficit. Several large access-deficit countries in the region have electrification growth rates that are not keeping up with population growth. Nigeria and the Democratic Republic of Congo (DRC) have the largest deficits, with 85 million and 68 million unelectrified people, respectively. India has the third largest deficit with 64 million unelectrified people, although its rate of electrification outpaces population growth. Among the 20 countries with the largest access deficits, Bangladesh, Kenya, and Uganda showed the greatest improvement since 2010, thanks to annual electrification growth rates in excess of 3.5 percentage points, driven largely by a comprehensive approach that combined grid, mini grid and off-grid solar electrification.
Clean cooking: Almost three billion people remained without access to clean fuels and technologies for cooking, residing mainly in Asia and Sub-Saharan Africa. Over the 2010 to 2018 period, progress has remained largely stagnant, with the rate of increase in access to clean cooking even decelerating since 2012 in some countries, falling behind population growth. The top 20 countries lacking access to clean cooking accounted for 82 percent of the global population without access between 2014 and 2018. This lack of clean cooking access continues to have serious gender, health, and climate consequences that affect not only the achievement of SDG target 7.1, but also the progress towards several other related SDGs. Under current and planned policies, 2.3 billion people would still be deprived of access to clean cooking fuels and technologies in 2030. The COVID 19 pandemic is likely to swell the toll of prolonged exposure of women and children to household air pollution caused by mainly using raw coal, kerosene or traditional uses of biomass for cooking. Without prompt action, the world will fall short of the universal cooking access goal by almost 30 percent. Greater access to clean cooking was achieved largely in two regions of Asia. From 2010 to 2018, in Eastern Asia and South-eastern Asia the numbers of people lacking access fell from one billion to 0.8 billion. Central Asia and Southern Asia also saw improved access to clean cooking, in these regions the number of people without access dropped from 1.11 billion to 1.0 billion.
Renewables: The share of renewables in the global energy mix reached 17.3 percent of final energy consumption in 2017, up from 17.2 percent in 2016 and 16.3 percent in 2010. Renewables consumption (+2.5 percent in 2017) is growing faster than global energy consumption (+1.8 percent in 2017), continuing a trend in evidence since 2011. Most of the growth in renewables has occurred in the electricity sector, thanks to the rapid expansion of wind and solar power that has been enabled by sustained policy support and falling costs. Meanwhile, the use of renewables in heating and transport is lagging. An acceleration of renewables across all sectors will be needed to achieve SDG target 7.2. The full impact of the COVID-19 crisis on renewables is yet to become clear. Disruption to supply chains and other areas risks delaying deployments of wind and solar PV. The growth of electricity generation from renewables appears to have slowed down as a result of the pandemic, according to the available data. But they so far appear to be holding up much better than other major fuels such as coal and natural gas.
Energy efficiency: Global primary energy intensity – an important indicator of how heavily the world’s economic activity uses energy – improved by 1.7 percent in 2017. That is better than the 1.3 percent average rate of progress between 1990 and 2010 but still well below the original target rate of 2.6 percent and a marked slowdown from the previous two years. Specific metrics on energy intensity in different sectors indicate that improvements have been fastest in the industry and passenger transport sectors, exceeding 2 percent since 2010. In the services and residential sectors, they have averaged between 1.5 percent and 2 percent. Freight transport and agriculture have lagged slightly behind. Achieving SDG target 7.3 for energy efficiency will require the overall pace of improvement to accelerate significantly to around 3 percent a year between 2017 and 2030. But preliminary estimates suggest that the rate remained well below that level in 2018 and 2019, making an even more substantial increase in the coming years necessary to reach the SDG 7 target.
International financial flows: International public financial flows to developing countries in support of clean and renewable energy doubled since 2010, reaching $21.4 billion in 2017. These flows mask important disparities with only 12 percent of flows in 2017 reaching those most in need (least developed countries and small island developing states). To accelerate renewable energy deployment in developing countries, there is a need for enhanced international cooperation that includes stronger public and private engagement, to drive an increase of financial flows to those most in need – even more so in a post-COVID-19 world.
This is the sixth edition of this report, formerly known as the Global Tracking Framework. The preparatory work of this year’s edition was chaired by the International Renewable Energy Agency (IRENA). Funding for the report was provided by the World Bank’s Energy Sector Management Assistance Program (ESMAP).
Vietnam’s Development Strategy for Next Decade Must Put Productivity Growth Front and Center
A productivity-driven development model–combining innovation with balanced development and allocation of private, public, human and natural capital–will be key for Vietnam to achieve its goal of becoming a high-income economy by 2045, a new World Bank report suggests.
The “Vibrant Vietnam: Forging the Foundation of a High-Income Economy” report, launched today, comes as the Government of Vietnam is preparing its socio-economic development strategy for 2021-30 and a socio-economic development plan for 2021-25. The report recommends policy options to help Vietnam to maintain quality growth through more dynamic firms, more efficient infrastructure, skills, and a move toward a greener economy.
“Vietnam is one of the greatest development success stories of our time. The country, however, is now at a turning point where some of its traditional drivers of growth are gradually weakening,” said Ousmane Dione, World Bank Country Director for Vietnam. “To achieve its ambition to become a high-income economy by 2045, Vietnam must put productivity growth front and center of its economic model. In other words, it needs to grow not only faster but also better”.
“Vietnam’s commitment to bold economic reform has been a major contributor to its remarkable economic success,” said H.E. Robyn Mudie, Australian Ambassador to Vietnam. “Australia is proud to have supported this report, which provides clear recommendations on how Vietnam can harness productivity enhancing reforms to improve both the quality and equity of its future economic development”.
Some of the forces that have propelled Vietnam’s growth are now slowing. The country’s demographic dividend is fading, and global trade is declining, while other challenges – such as pollution and the rise of automation, are growing. The ongoing COVID-19 crisis could be an accelerator of these trends.
The reportargues that to thrive in such changing environment, Vietnam needs to strengthen its productive assets, with priority given to four following areas:
Dynamic firms: Encouraging competition and easing firm entry and exit ensures the flow of resources to the most innovative and productive firms. This can only happen in a supportive business environment that ensures access to finance, transparent regulations and legal protections.
Efficient infrastructure: Vietnam has built up a large stock of infrastructure. It now needs to improve the efficiency and sustainability of infrastructure services, including financing, and operations and maintenance.
Skilled workers and opportunities for all: The country scores well on basic education, but it will need to promote university and vocational-technical skills that are becoming even more important for a productivity- led growth model. Those facing barriers entering the labor market, including ethnic minorities, should be provided with greater opportunities—to boost both social equity and economic growth as the population ages and the labor force shrinks.
Green economy: Sustainable development requires more effective management of renewable natural resources such as land, forest and water; stricter pollution controls, including in major urban centers; and mitigation of and adaptation to the inevitable growing impacts of climate change.
The report is a product of the Second Australia – World Bank Group Strategic Partnership in Vietnam (ABP2), with financial contribution from the Korean Global Facility on Growth for Development Trust Fund.
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