WASHINGTON: The World Bank on Sunday warned Pakistan to address key growth constraints like electricity shortages, cumbersome business climate, complex trade regime, low access to finance and security situation if its wants the economy to accelerate in the long run.

“The slowdown in China, if protracted, could have adverse effects on investment and trade, and Pakistan may not have the ability to absorb external shocks in the absence of strong buffers,” according to the twice-a-year South Asia Economic Focus report.

The report says that realisation of tax revenue targets largely hinges on steady implementation of tax reform agenda. “For sustained and inclusive growth, Pakistan needs to successfully implement reforms in energy and taxation, and increase investment.” The bank expects Pakistan’s fiscal deficit to decline to 3.5% of the Gross Domestic Product (GDP) by Financial Year 2017, in a latest report unveiled on Sunday, projecting a steady growth recovery-cum-low inflation in the next two years, supported by fiscal consolidation and an improving external position.

Investment is expected to rise due to operationalisation of China Pakistan Economic Corridor (CPEC) and inflation is projected to low on the back of low commodity prices, exchange rate stability and a prudent fiscal policy, the report said. “Fiscal consolidation is projected to continue over the medium term based on strong tax revenue efforts as well as gradual phasing-out of energy-related subsidies and of contingent liabilities on loss-making SOEs,” the report added.

Resultantly, the report said, the fiscal deficit is expected to decline to 3.5% of GDP by FY 2017.The reduced need for deficit financing should facilitate provision of bank credit to the private sector, leading to increased economic activity.

The deficit for the 2014-15 was provisionally projected at around 5%.The government is aiming 4.3% budget deficit target for the current fiscal year.The World Bank projected Pakistan’s economic growth to accelerate to 4.5% in FY 2016 and then further to 4.8% in FY 2017 supported by strong growth in industry and services.Overall, South Asia is expected to maintain its lead as the fastest-growing region in the world, with economic growth forecasted to accelerate from 7% in 2015 to 7.4% in 2016.The report said that macroeconomic stability in Pakistan has largely been restored and key external risks are lower.“The record increase in remittances and stable agricultural performance continues to support a steady growth outlook.”

Prospects for continued growth appear reasonably bright, supported by strong fiscal consolidation and improved external position, the report said but added that slowdown in China might affect this outlook.Noting the recent development, the report said that economic conditions have improved over the past year and a strengthened external position, continued fiscal consolidation efforts, and progress in achieving structural reforms have led to Pakistan’s outlook being raised to positive from stable by the main rating agencies. Record high remittances offsetting a persistent trade deficit; subdued international oil prices curtailing the import bill; and improved inflows against Coalition Support Fund together contributed to a manageable current account deficit of 0.8% of GDP in FY 2015.