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Chinese Projects, Reforms Boost Pakistan's Growth To Fastest In 13 Years

Construction on the China-Pakistan Economic Corridor road in Balochistan.
Construction on the China-Pakistan Economic Corridor road in Balochistan.

Pakistan's economy is growing by 5.8 percent this fiscal year, the fastest pace since 2005, aided by structural reforms and China's new Silk Road project, the government estimates.

"We would have achieved 6.1 percent without political turmoil," Pakistan's Minister for Planning and Development Ahsan Iqbal said in Islamabad on April 26.

The country fell into tumult last year when then-Prime Minister Nawaz Sharif was forced to step down amid graft allegations.

Pakistan also for years has been plagued by insurgencies by the Taliban and other militant groups which have inhibited investment and growth in the economy, as have chronic energy shortages that have hampered its industries.

But with security improving and the International Monetary Fund declaring in October that Pakistan has emerged from crisis after completing a bailout program, confidence in South Asia's second biggest economy is growing.

Factors that have contributed to improved growth this year include structural reforms in the economy, a modernizing energy sector, and China's ambitious $46 billion infrastructure project, the China-Pakistan Economic Corridor, linking its western province of Xinjiang to the Arabian Sea through Pakistan.

But the economy still is held back by some structural problems, economists say. The World Bank and the International Monetary Fund have warned that Pakistan's widening current account deficit poses a drag on the economy.

Pakistan's foreign exchange reserves have also been dwindling amid a consumer boom and a spike in imports, including for machinery needed to carry out the infrastructure projects that form part of China's new Silk Belt and Road initiative.

Pakistan's acting Finance Minister Miftah Ismail said the government now estimates growth for the last fiscal year between July 2016 and June 2017 at 5.4 percent, up from an earlier 5.3 percent estimate.

That small upgrade in growth strengthened the outlook for the current fiscal year, with solid growth now occurring in all three of Pakistan's main economic sectors, he said.

Ismail estimated that Pakistan's agricultural sector is growing by 3.8 percent, manufacturing is growing by 5.8 percent, and services are growing by 6.43 percent.

Combining the performance of each sector, the economy is achieving growth of about 5.8 percent this year while inflation has remained at a subdued rate of 3.78 percent, he said. The inflation rate was 4 last year, down from as high as 8 percent in 2013.

The government has in recent months devalued the rupee, imposed tariffs on imported goods, and sought to boost exports to reduce growing balance of payments pressures.

Ismail said that he supported devaluing the rupee against the U.S. dollar twice in recent months to arrest the current account deficit, which has been putting pressure on country's foreign exchange reserves.

A decline in exports in the last two to three years has been the main reason for the widening current account deficit, Pakistan's latest economic survey said, along with disappointing foreign investment and slow global trade.

But it said those conditions started to turn around in the current fiscal year, which is experiencing a 12 percent growth spurt in exports while import growth has slowed to 16.6 percent compared with 48 percent last year.

With reporting by AFP and Reuters
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