GDP growth was robust in FY2015-16 (+7.1%). Domestic demand was the main driver underpinned by favorable macro-policies. Private consumption remained resilient as weaker remittances were offset by a pay hike for public servants. The net trade of goods and services contribution to growth improved as lower commodity prices decreased import bill.
Economic growth is set to slow in both FY2016-17 (6.7%) and FY2017-18 (6.3%) but remains in the range of 6-7%. Firstly, a gradual rise in commodity prices and a rise in VAT will likely translate into higher inflation and act as a drag on private consumption. Secondly, net trade performance is set to weaken reflecting modest exports outlook and a higher import bill.
Going forward, risks are elevated. Enhancing private investment will be pivotal to put growth on a healthy and sustainable path. Growth relies heavily on domestic consumption. Private investment remains weak and low foreign direct investment point to a fragile outlook. Security issues, weak business environment, financial weaknesses and infrastructure shortcomings are among the reasons for investor’s caution.