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Pakistan’s economy grew 4.2 pct in 2015, but investors still wary -c.bank

Pakistan’s economy grew 4.2 percent in fiscal 2015, but investors remain wary of systemic weaknesses, the central bank said on Friday, urging the government to adopt clearer, more consistent policies on industry and trade.

The economy needs to expand at least six percent each year to absorb new entrants into the work force from Pakistan’s growing population of 190 million.

“Investors’ confidence demands the presence of a predictable macroeconomic environment with a well-coordinated and consistent long-term industrial and trade policies,” the State Bank said in its annual report.

Although growth for the financial year to June 2015 fell short of a target of 5.1 percent, it was slightly better than the 4.0 percent achieved in 2014, the bank said.

“Pakistan’s economy did reasonably well,” it added. “GDP growth posted a marginal increase over last year, whereas key macroeconomic indicators, like inflation, fiscal balance and current account balance recorded improvements.”

Like most other nations, Pakistan benefited from lower global prices of oil and commodities, which helped bring inflation down to 4.6 percent from 8.6 percent the previous year.

That helped to mitigate disappointing exports and a lack of investment, two factors that would have spurred greater growth.

Energy shortages and unclear economic policies discouraged investment, the bank said.

Pakistan recently introduced a surprise raft of import taxes in a bid to plug holes in the budget left by the government’s unwillingness to tax the wealthy.

Such sudden supplementary measures are frequent, but unpredictable, as the government routinely misses its targets. It has done nothing to reform its dysfunctional tax system and the International Monetary Fund says the burden of indirect taxes generally falls hardest on the poor.

As a result, the picture for exports and foreign direct investment was bleak, the bank said.

“Exports and foreign direct investment – more sustainable sources of foreign exchange earnings – are not showing any encouraging picture,” it added.

“The decline of 5.7 percent in FY15 exports, compared to an increase of 2.7 percent last year, is disappointing.”

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