SL posts large adjustment in current account deficit

Pakistan’s economy is likely to grow at the slowest pace in South Asia in the next three years, according to the Global Economic Prospects 2010 released by the World Bank which also stated that the region was least impacted by the global recession.
It has estimated real GDP growth rate of 3.7 per cent for Pakistan in 2009-10, 3 per cent in 2010-11 and 4 per cent in 2011-12. The bank estimates that the current account balance would be negative 5.9 per cent of gross domestic product in this fiscal and a negative 4.5 and 4.1 per cent for the year 2010-11 and 2011-12.
India according to Global Economic Prospects 2010 would be the fastest growing economy in the region with a real GDP growth of 6 per cent in 2009-10, 7.5 per cent in 2010-11 and 8 per cent in 2010. This means that the Indian GDP growth is forecast to be 2.5 times higher than Pakistan in 2010-11 and two times higher in 2011-12.
India current account balance as percentage of its GDP is estimated by the bank at negative 2.6 in 2009-10 and negative 3.1 and 3.3 per cent in 2010-11 and 20111-12.
Bangladesh is expected to post a GDP growth rate of 5.9 per cent in 2009-10 and is forecast to maintain growth rates of 5.5 per cent in 2010-11 and 5.8 per cent in 2011-12. The positive aspect of its growth is that it will have positive current account balance of 2.6 per cent of its GDP in 2009-10 and is expected to remain positive in next two years at 2.2 and 1.5 per cent of its GDP.
The report points out that growth has been weakest in countries that entered the crisis with large internal and external imbalances and that were forced to severely crimp domestic demand, such as the Maldives, Pakistan, and Sri Lanka.
Countries that entered the crisis with stronger fundamentals, such as Bangladesh Bhutan, and India, weathered the crisis better. It also states that a number of regional economies also faced ongoing internal conflicts that continued to disrupt economic activity, notably Afghanistan, Pakistan, Sri Lanka, and to a lesser extent Nepal.
The World Bank pointed out that regional industrial activity, which did not contract as much as in most other developing regions, has shifted into positive growth, led by India, Bangladesh, and more recently Pakistan. Merchandise trade growth remains below previous-year levels for the region, with imports down much more sharply than exports, given the sharp compression of demand in Maldives, Pakistan, and Sri Lanka in particular.
During 2009, the Maldives, Pakistan, and Sri Lanka posted the largest adjustments in their current account deficits.
Domestic demand was sharply compressed in the three economies, where large fiscal deficits had contributed to the buildup of considerable external imbalances before the crisis.
Among South Asian economies, India - the largest recipient of remittances in the world in dollar terms - posted a contraction in remittance inflows in 2009, while Bangladesh, Nepal, Pakistan, and Sri Lanka, experienced a slower pace of growth of remittances inflows the report states.
The recovery path for the individual economies will vary substantially. India, Bangladesh, and Bhutan are expected to emerge from the global crisis with stronger growth performances, backed by generally sound economic policies and greater resilience of trade, investment, and remittances. Sri Lanka is also forecast to post a relatively firm recovery, supported by the recent surge in capital inflows and improvement in investor confidence following the cessation of fighting after nearly three decades of civil war. Elsewhere in the region, conflict-affected countries-Afghanistan, Pakistan, and to a lesser extent, Nepal-are expected to face moderate growth outturns, as political uncertainty and fighting continue to disrupt economic activity.
The News