Pakistan ranked third in region in GDP growth

ISLAMABAD: The latest economic and financial indicators show that Pakistan compared favourably with the other regional countries and ranked third in the region whereas seventh globally in terms of GDP growth.

The latest economic and financial indicators updated by the Economist show that Pakistan’s GDP has performed well in the current fiscal year and by the end of December 2015 it was ranked third in the region after China and India.

The economic indicators which include output, prices and jobs, trade, exchange and interest rates show that the latest GDP growth of the country has been recorded at 5.7 whereas in 2017 it has been predicted at 5.3 percent. The industrial production percentage and change a year ago has been recorded by +2.3 percent till October 2016 whereas during the same period India’s industrial production percentage and change was recorded -1.9 percent.

The economic experts believe that the Economist’s data is validating the government’s target for the GDP growth which is a positive sign; however, there is a need of reducing unemployment ratio as well. According to the experts the reduction in export is also a worrying indicator which needed to be considered by the government seriously.

According to the Economist’s data, the consumer prices percentage and change on a year ago has been recorded at +3.7 whereas India scored +3.6 in the same indicator. The unemployment rate has been recorded at 5.9 till 2015 whereas India’s unemployment was recorded at 5 in the same period.

In another indicator, the trade balance of the country has been recorded at -26 by December 2016 whereas Pakistan’s current account balance has been recorded at -4.1 in quarter 3 which is -0.9 percent of the GDP in 2016. The budget balance has been recorded at -4.6 percent of the GDP whereas the interest rate has been recorded at +6.09 in 3 months whereas in the indicator of 10-year government bonds, Pakistan scored 8.03.

According to State Bank of Pakistan (SBP)’s annual report, Pakistan’s economy maintained its momentum towards a higher growth trajectory in FY16. An enabling policy environment was one of the key factors that contributed to this impetus. Higher infrastructure spending by the government and decades’ low interest rates provided a boost to domestic demand; and easing in the energy supply situation addressed a key bottleneck holding back industrial performance. An improvement in the security situation supplemented these policy measures. While some indicators were short of the targets, they still posted better position as compared to FY15.

As per the SBP report, the current account deficit during FY16 was higher than the last year, though it was comfortably financed by financial inflows. In fact, in net terms, the FX inflows during FY16 were higher than outflows, which led to accumulation of foreign exchange reserves to an all time high level.

The SBP in its annual report however has highlighted some challenges in order to bring improvement in the country’s economy. According to this report there are certain challenges that deserve the undivided attention of all stakeholders:

“First, Pakistan needs to increase its savings and investment levels. Although public investment is increasing despite resource constraints, investment by the private sector has not increased sufficiently. This has inhibited the country’s potential growth. On the other hand, savings are not commensurate with required investible resources. The situation cannot be fully remedied unless the private sector, in particular, comes up with attractive savings schemes in the areas of pensions, provident fund, gratuity, old age benefit schemes; targeted marketing of such schemes (including in the rural areas) is also imperative,” the report says.

Even the SBP in its report has highlighted the decline in exports and termed it a major challenge for the government. According to report, “Exports continue to pose a major challenge for a sustainable external account. Some recent policy fixes (like zero rating of exporting sectors and release of refunds) are welcome steps and will have positive impact, but structural issues in the export industry should also be resolved. In fact, these shortcomings magnify the impact of falling global commodity prices (for example, the decline in unit prices suppressed export values of certain commodities).”

While ongoing fiscal consolidation measures are welcome and have been widely appreciated by both local and foreign stakeholders, the reliance of the tax structure on stop-gap measures (like imposition of regulatory duties in November 2015) is creating distortions in the economy. As sectors like telecommunication and energy yield hefty revenues, others like agriculture are hardly contributing their worth in total taxes, highlights the report.

The report has also highlighted that the country has been unable to spend nearly as much on social sector development as it needs to. “Be on health or education, Pakistan spends much less as percentage of GDP than many developing countries. Despite some improvements in areas like poverty alleviation, maternal and child mortality, and primary school enrolment, the country was unable to meet a majority of the targets set under the Millennium Development Goals (MDG) framework. With the Sustainable Development Goals having replaced MDGs last year, a deep rethink is required across all levels of the government – federal, provincial, and local – to have any meaningful chance of meeting the SDGs,” the SBP report says.