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World economy.

The world economy is expected to grow marginally in 1993, but is likely to accelerate its pace in 1994; with real gross national product (GNP) to grow by 1.5 per cent in 1993 and 3.5 per cent in 1994, according to Asian Development Outlook, an annual publication of Asian Development Bank (ADB). The Outlook adds that while the North American economy will improve, the European economies will remain weak in 1993. In the developing world, economic growth in Asia and, to some extent, the Middle East will be robust, while progress in Africa and Latin America will be more modest.

According to the Outlook. the volume of world trade will increase more rapidly than in 1991 and 1992. Prices of primary commodities should firm slightly, reversing the deterioration in terms of trade of primary producers in Africa and parts of Latin America. In the United States, where the recovery is gathering steam. led by private domestic investment, the growth is expected to be 3.2 per cent in 1993, rising to 3.3 per cent in 1994.

In Japan, prospects for 1993 hinge on the revival of consumption and housing demand and the effectiveness of supplementary budget measures approved in the 1992 and 1993 budget. Business investment is expected to remain weak during 1993 in light of poor corporate profits and as balance sheet adjustments continue in the wake of lower equity and real estate prices. Overall, the Japanese economy will recover somewhat in 1993, registering growth of 2.1 per cent in 1993 and 2.5 per cent in 1994.

The Outlook observes that economic growth in Germany is expected to be negligible, as the western part of the country remains in recession through much of 1993. There should be some improvement in economic performance during 1994, with growth reaching 2.7 per cent.

The prospects of Eastern Europe and countries of the former Soviet Union are difficult to assess as much depends upon the speed with which the private sector is able to reverse the poor economic performance to date. In Africa, some revival in growth is expected but it will hardly exceed the rate of population growth. Conditions in Southern and Eastern Africa should improve if civil disturbances can be controlled and weather conditions return to normal.

In Latin America, the economic performance of Brazil should improve but overall growth in the region will be partially offset by somewhat slower growth in the successfully adjusting countries, particularly Argentina, Chile and Venezuela.

World Recession

The Federal Government has attributed international recession as one of the major factors that contribute to overall balance of payments being in deficit to 153 million dollars during the current fiscal (1992-93). According to reliable sources, the Government also attributes the international recession along with some local factors to the failure in achieving the export target of the current year amounting to 8,050 million dollars. The Government now expects to fetch only 7,470 million dollars during the current year from ex ports.

The budget for 1992-93 had assumed that the current account would undergo some improvement stemming from a higher growth in exports and a slowdown in imports. Estimates based on the outcome of the seven months of 1992-93 indicate that the overall external position could be less favourable than anticipated.

The current account deficit is now estimated at $ 2.5 billion compared with a budget estimate of $ 2.2 bill ion for 1992-93. As a consequence of this, and after accounting for movements in the capital account, it is estimated that there may be a drawdown of $2.34 million in the foreign exchange reserved for 1992-93. The two factors responsible for the changed outlook are the failure of the international recession to bottom out as predicted plus the adverse effects of the severe floods of September 1992.

The Government authorities are of the view that for 1993-94, the restoration of cotton production to pre-flood levels and improvement in the terms of trade could reduce the current account deficit. Allowing for inflows of private capital and assuming higher disbursement of aid in 1993-94 compared with 1992-93, the government expects that foreign exchange reserves would increase in 1993-94 by $ 297 million.

At the time of the formulation of the foreign exchange budget for 1992-93, exports were projected to increase to $ 8050 million showing a growth rate of 19.5 per cent over 1991-92. Based on the performance during seven months of the current fiscal year, exports are now projected to increase by 10.5 per cent from $6761 million in 1991-92 to $ 7470 million in 1992-93. A principal reason for this is the loss in cotton production owing to the floods, as well as weak prices for cotton and cotton yarn in the international market.

Overall imports were originally projected at $ 9918 million for 1992-93. Revised estimates place import expenditures at $ 9905 million for 1992-93. Private sector imports are now estimated at $ 4886 million as against $ 5226 million provided in the budget. The higher estimate of import payments is mainly attributable to the need for larger wheat imports than originally anticipated.

The deficit on invisibles account is expected to turn out to be higher than the forecast at the time of the budget owing to a higher deficit on the services account. Workers' remittances will, however, be marginally higher than earlier forecast. The current account deficit is expected to increase by $ 268 million to $ 2475 million or 4.7 per cent of GDP.

In the budget estimates it was assumed that gross aid disbursements would be $ 2405 million. Present estimates are that gross disbursement will be $ 2248 million due mainly to a shortfall of some 38 per cent in commodity aid. Allowing for other capital flows and receipts, the overall balance of payments is expected to be in deficit by $ 153 million. However, after taking into account Pakistan's purchase and repurchase obligations with the IMF, 1992-93 is likely to witness a drawdown of $ 234 million in gross foreign exchange reserves.
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Publication:Economic Review
Date:Apr 1, 1993
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