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MH
Mehtab Haider
May 20, 2017

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Ministry of planning’s proposed 3.1 percent CAD rejected

Ministry of planning’s proposed 3.1 percent CAD rejected

Government trims current account deficit target for FY18 to 2.7pc

ISLAMABAD: Finance ministry has termed current account deficit (CAD) projection of 3.1 percent, set by the planning ministry for the next fiscal year, as ‘too high’, saying such a forecast might affect the country’s foreign ratings, sources said on Friday.

The ministry of planning, in a summary forwarded to the National Economic Council (NEC), revised down current account deficit to 2.7 percent of GDP, or $9.1 billion, for 2017/18, from an earlier 3.1 percent or $10.4 billion.

Prime Minister Nawaz Sharif chaired the NEC’s meeting on Friday. The finance ministry argued that such high current account deficit projection would give wrong signal that might impact the country’s rating.

Sources said the Planning Commission was forced to revise downward the CAD with an assumption that exports would be increased by 6 to 7 percent, while imports would be discouraged through policy measures in the coming budget by increasing duty and taxes on non-essential items.

CAD widened more than two times to $7.247 billion in July-April 2016/17 mainly due to subdued exports and growing imports. The current account gap reached equivalent to 2.7 percent of GDP in the period under review as compared to one percent in the same period last year. 

The summary of annual plan on macroeconomic framework for 2017/18 said economic growth prospects are positive for the next fiscal year with strong performance of industrial sector, rebound in agriculture, pickup in private sector credit along with improved security situation.

The growth of GDP for 2017/18 is targeted at 6 percent with contributions from agriculture (3.5 percent), industry (7.3 percent) and services (6.4 percent).

The envisaged targets are subject to risk such as extreme weather fluctuation, interruption in envisaged reforms and nonalignment of monetary and fiscal policies. Inflation for 2017-18 is targeted at 6 percent on the basis of rising commodity prices in the international market. 

Agriculture sector is targeted to grow 3.5 percent on the basis of expected contribution from important crops (2 percent), other crops (3.2 percent), cotton ginned (6.5), livestock (3.8 percent), fishing (1.7 percent) and forestry (10 percent).

Adequate of cotton crops is expected for 2017/18 given better performance of cotton crops in 2016/17 and increasing trend in cotton prices. The growth prospects for livestock, fishery and minor crops are bright. Therefore, agriculture sector is expected to achieve the envisaged growth of 3.5 percent in 2017-18.

Industrial sector is expected to grow 7.3 percent during 2017/18 on the back of better energy supply and planned investment under China-Pakistan Economic Corridor (CPEC). The mining and quarrying sector is projected to grow by 3.5 percent. Beside, the manufacturing sector is expected to grow 6.4 percent for 2017/18 with growth rate of large scale manufacturing (LSM) 6.3 percent, small and household manufacturing 8.2 percent, construction 12.1 percent and electricity, generation and gas distribution 12.5 percent.

Several energy-related fast-track projects under CPEC are expected to be completed in the next fiscal year. LSM growth will also go up with the ongoing construction activities and infrastructure projects.

Services sector is targeted to grow 6.4 percent in 2017/18, supported by growth of 5.1 percent in transportation, communication and storage, 7.2 percent in wholesale and retail trade, 9.5 percent in finance institution, 4 percent in housing, 7 percent in general government services and 6.7 percent in other private services sector. The expected higher growth in commodity producing sector (based on availability of affordable energy sources and finances) will support the targeted growth in services sector.

Investment is targeted at 17.2 percent of GDP in order to realise sustained and inclusive growth. National saving as a percent of GDP is targeted at 14.1 percent. The investment under CPEC is expected to support the overall investment climate. Further, the improvement in investment-friendly environment as a result of availability of energy, cheap finance, beside improved law and order and political stability will help attain this investment target. Fixed investment is expected to grow to 15.6 percent of GDP in 2017/18.

 

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