RAWALPINDI, Jan 16: Pakistan is forecast to see a fall in its growth rate to 3.8 per cent in 2009 owing to continued political uncertainty, problems of law and order and severe electricity shortages, says a new United Nations economic survey released on Thursday.

The ‘World Economic Situation and Prospects 2009’ stated that economic growth in South Asia remained robust in 2008 at 7 per cent, despite a slow down in a number of countries in the region.

Growth was upheld by high commodity export earnings in the first half of 2008 in Pakistan, Bangladesh, Iran and Sri Lanka. However, the region’s GDP growth is expected to slow to 6.4 per cent in 2009 amidst the fallout from the global financial crisis.

While the slowdown has thus far mainly been limited to the industrial sector, it is expected to spread to the service sector as the squeeze on costs becomes

more pervasive and demand slackens, according to the report prepared by the UN Department of Economic and Social Affairs (DESA) jointly with UNCTAD and five UN regional commissions.

Most countries in the region, with the notable exception of Iran, pursued strict monetary policies to contain inflation in 2008. In addition, some governments introduced new or strengthened existing short-term measures to curb food price increases.

The Survey stated that although financial institutions in South Asian countries had little direct exposure to the United States sub-prime mortgage market, the global financial crisis has had indirect effects on domestic financial markets, with money markets experiencing an unusual tightening of liquidity.

In addition, outflows of foreign capital have posed serious problems in both India and Pakistan. In the case of Pakistan, foreign-exchange reserves, which had stood at $16.5 billion in October 2007, decreased to about $7 billion a year later, it said.

Although inflation rates have increased throughout South Asia mainly due to higher international commodity prices, in Pakistan, it increased by over four percentage points, to 12 per cent in 2008, with food inflation reaching 17.6 per cent.

The report pointed out that while government revenues increased in a number of South Asian countries, the increase in expenditure was much larger, owing primarily to increased subsidies and increases in public sector wages. In Pakistan, the budget deficit rose to 7.4 per cent of GDP in 2008, the highest level in the past ten years.

Citing Pakistan as an example, the report stated that the value of imports in dollar terms was roughly double the value of exports in 2008, and the merchandise trade deficit of $20 million was about 12 per cent of GDP. In 2009, trade balances in the region will remain under pressure, as weaker demand in overseas markets will lead to a stagnating export performance.

Employment in the region will suffer in the light of the global economic crisis, whose effects will be especially felt in labour-intensive export industries such as textiles. However, the large amount of workers’ remittances has so far remained a stabilising factor for aggregate household income in the region. Pakistan received a record $6.5 billion in terms of remittances in 2008.

Since most of these remittances originate from the oil-rich Middle Eastern countries, if oil prices fall considerably over a sustained period, remittances will likely decline, with large shares of the population losing an important source of livelihood and aggravating the problem of poverty.

In the baseline scenario of the UN forecast, world gross product is expected to slow to a meagre 1 per cent in 2009, a sharp deceleration from the 2.5 per cent growth estimated for 2008 and well below the more robust growth of previous years. At the projected rate of global growth, world income per capita will fall in 2009.

Output in developed countries is expected to decline by 0.5 per cent in 2009. Growth in the economies in transition is expected to slow to 4.8 per cent in 2009, down 6.9 per cent in 2008, while output growth in the developing countries would slow from 5.9 per cent in 2008 to 4.6 per cent in 2009.

To stave off the risk of a deep and global recession, the UN report recommends the implementation of massive, internationally coordinated fiscal stimulus packages that are coherent and mutually reinforcing and aligned with sustainable development goals. These should be effected in addition to the liquidity and recapitalisation measures already undertaken by countries in response to the economic crisis.