Pakistan’s Economic Survey 2018-19, Muted Growth of 3.29% Against Ambitious Target of 6.2 %

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Islamabad; App+Staff Reporter-Adviser to the Prime Minister on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Shaikh Monday expressed the government’s resolve to address long drawn- out basic issues to put the national economy on sustainable growth path.

   “Currently, we are working on stabilization policy. When this phase ends, we will work on the policies that will improve growth numbers,” the Advisor said here at the launching of Pakistan Economic Survey for the outgoing fiscal year (2018-19).

     Hafeez Shaikh was flanked by Advisor to the Prime Minister for Commerce, Textile, Industry and Production Razak Dawood, Federal Minister for Power Division and Petroleum Umar Ayub, Chairman Federal Board of Revenue (FBR) Syed Muhammad Shabbar Zaidi and top officials of Ministry of Finance.

According to the Economic Survey, the outgoing fiscal year 2018-19 witnessed a muted growth of 3.29 percent against the ambitious target of 6.2 percent. The target was based upon sectoral growth projections for agriculture, industry, and services at 3.8 percent, 7.6 percent and 6.5 percent respectively.

The actual sectoral growth turned out to be 0.85 percent for agriculture, 1.4 percent for industry and 4.7 percent for services.

During the outgoing year, the total investments as a percentage of gross domestic product (GDP) was recorded at 15.4 percent against the target of 17.2 percent. The fixed investment as percentage of GDP remained at 13.8 percent against the target of 15.6 percent, while public and private investments remained at 4.0 and 9.8 percent against the targets of 4.8 and 10.8 percent respectively.

The National Savings remained at 10.7 percent of GDP against the target of 13.1 percent. The consumption growth was recorded at 11.9 percent against 10.2 percent growth recorded last year. As percentage of GDP, it increased to 94.8 percent as compared to last year’s figure of 94.2 percent.

On the demand side, the exports declined by 1.9 percent despite exchange rate depreciation, while imports declined by 4.9 percent. It helped in reducing the trade deficit by 7.3 percent during July-April FY 2019 while it had shown an expansion of 24.3 percent during the corresponding period of last year.

The workers’ remittances played a major role in containing current account deficit to 4.03 percent of GDP.

The current account deficit (CAD) showed a contraction of 27 percent during July-April of the current year while it had expanded by 70 percent during the corresponding period of last year.

Meanwhile, the fiscal sector faced multifaceted challenges over the years due to excessive and unproductive expenditures on one hand and lower tax revenues on the other.

Generally, higher current expenditures and lower tax revenues left limited fiscal space for public investment and social safety net. Furthermore, high interest payments, untargetted subsidies, loss making PSEs, energy subsidies and security related issues all weighed on expanding fiscal deficit.

During the last five years, total revenue as percent of GDP on average reached to 14.9 percent, whereas it stood at 15.1 percent in FY2018. The total expenditures as percent of GDP on average reached to 20.5 percent, while during the preceding year FY2018, it was the highest at 21.6 percent. Resultantly, the fiscal deficit on average stood at 5.5 percent, while during the last year it was recorded at 6.5 percent.

During first nine months (July- March) CFY2019, consolidated fiscal indicators suggested that total revenue registered zero growth, while growth in total expenditures was 8.7 percent.

Therefore, fiscal deficit as percent of GDP was 5.0 percent as compared to 4.3 percent during the corresponding period of last year.

Total revenue increased to Rs 3,583.7 billion (9.3 percent of GDP) from Rs 3,582.4 billion (10.3 percent of GDP) during the comparable period of last year, showing almost zero growth in comparison of growth of 13.9 percent during the same period last year.

Decelerated performance of total revenues primarily was due to marginal growth of 1.8 percent in tax revenues and negative growth of 16.7 percent in non-tax revenues.
During the period July-April FY2019, the FBR’s tax receipts remained at Rs 2,976.0 billion against Rs 2,922.5 billion during the same period of FY2018, registering a growth of 1.8 percent.

Actual tax collection during the first ten months of current CFY remained at 67.7 percent of revised target of Rs 4,398 billion.

Total expenditures increased to Rs 5,506.2 billion (14.3 percent of GDP) during the first nine months of CFY2019 registering a growth of 8.7 percent against Rs 5,063.3 billion (14.6 percent of GDP) showing the growth of 15.5 percent.

Within total expenditures, current expenditures posted a growth of 17.7 percent to Rs 4,798.4 billion (12.4 percent of GDP) during July-March, FY2019 as compared to Rs 4,075.4 billion (11.8 percent of GDP) in the same period last year. Federal and provincial governments’ current expenditures grew by 19.9 and 13.7 percent, respectively during the period under review.

On the contrary, development expenditures (excluding net lending) decreased to Rs 655.9 billion during July-March FY2019 against Rs 993.3 billion last year, posting a negative growth of 34.0 percent as compared to positive growth of 23.6 percent recorded last year.
Meanwhile, twin deficits on fiscal and external front, emerging inflationary pressure and high aggregate demand posed challenges for the economy towards the end of FY2018.

Resultantly, the SBP reversed its policy stance since January 2018 from accommodative to contractionary monetary policy to curb excessive aggregate demand and ensure near term stability. The policy rate, which had gradually increased by cumulative 650 bps, stood at 12.25 percent effective from 21st May, 2019.

The PSX index increased from 33,229 points as on January 1, 2016, to 38,649 as on March 31, 2019, a rise of 16 percent. At the start of FY2019, the market gained some momentum, reaching 43,557 points on July 30, 2018, after which it started moving down, reaching the period’s lowest index at 36,663 points on October 16, 2018.

The CPI witnessed a rising trend during the current financial year. It increased to 5.8 percent in July 2018 and after remaining sticky at 5 percent during following two months increased to 6.8 percent in October 2018. The spike witnessed in October 2018 was due to increase in gas prices. The substantial increase of 9.4 percent was witnessed in March 2019 while in April 2019 it was recorded at 8.8 percent.