Services sector growth: Pakistan Railways, PIA performed well in 2018-19, says SBP

July 22,2019

ISLAMABAD: At the time when services sector growth has reduced compared to last year, Pakistan Railways and Pakistan International Airlines have showed improvement in its performance.The national...

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ISLAMABAD: At the time when services sector growth has reduced compared to last year, Pakistan Railways and Pakistan International Airlines (PIA) have showed improvement in its performance.

The national flag carrier’s top official has claimed that PIA has achieved operational break-even and is further improving with the increase in aircraft and adding more profitable routes. The weak performance of the commodity-producing sectors spilled over into the services sector, as it grew by 4.7 percent during the financial year 2018-19 against the target of 6.5 percent and last year’s growth of 6.2 percent, said a latest report of the State Bank of Pakistan (SBP).

Given its strong linkages with the commodity-producing sector, it was hardly a surprise that growth in wholesale and retail trade nearly halved during the review period compared to FY-18. The slowdown in general government services was also quite pronounced compared to last year, though the segment managed to surpass its FY-19 growth target.

Transport, storage and communication performed better during FY-19 compared to a year earlier. In FY-19, it grew by 3.4 percent as compared to 2.2 pc last year.

Growth in air transport segment remained at 3.4 percent, similar to last year. The central bank said that this period under review appeared to offer some respite to PIA, as the national flag carrier claimed to have reached operational break-even during the period.

In a footnote, the bank said, “According to anecdotal evidence, contributing factors included an improvement in the seat occupancy per flight, the return of four planes previously grounded for repair and maintenance to the operational fleet, employee cutbacks, lower ticket reservation cost, better cargo load factor, and more flights on profit-making routes.”

Growth in road transport, one of the heavyweight segments, nearly doubled to 3.9 percent compared to last year. Also noteworthy was the continuing improvement in railways segment.

The bank while quoting official sources in its latest third quarterly report for financial year 2018/19 said that Pakistan Railways generated higher earnings during July-March FY-19 compared to a year earlier, having introduced 24 new trains as well as a trains tracking system which helped improve fuel efficiency.

Elsewhere, in the telecom sector, cellular tele-density continued to rise, from 72.8 percent as of June 2018 to 75.9 percent by end-March 2019; similarly, broadband penetration increased from 28.3 percent as of June 2018 to 32.6 percent as of March 2019. The Q3-FY-19 period was an eventful one for PTCL, with profits for the three-month period nearly doubling compared to a year earlier.

Finance and insurance also witnessed a slowdown compared to last year, the report said, adding that the lower growth in gross value addition by scheduled banks, which have the greatest share in the segment, set the tone for the moderation in the face of subdued growth of deposits while their investments declined.

Meanwhile, performance of the equity market remained dismal. Since the portfolio of insurance companies and mutual funds is largely dominated by investments in equity market, that also adversely effected the segment's performance.

From a long-term perspective, it is worth highlighting that gaps in logistics performance may have prevented the services sector from realising its full potential over the years. This especially applies to segments like wholesale and retail trade and transport, storage and communication, which have the largest weight within services.

More broadly, better logistics can also enhance the output of commodity-producing sectors, and thus impact real GDP growth as a whole. Thus, being mindful of and addressing the gaps in logistics performance merits high priority.


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