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Tuesday March 19, 2024

10-year record of development broken

By Israr Khan & Mehtab Haider
May 26, 2017

Volume of economy reaches Rs350 trillion; GDP growth reaches 5.28 percent; trade deficit increase and public debt pose challenge to economy; debt burden on Pakistan increases by 46pc in last four years; total debt surges to Rs20,872 billion; federal govt unveils Economic Survey 2016-17

ISLAMABAD: Pakistan’s economy has demonstrated good performance on account of GDP growth of 5.28 percent, which is a 10-year record, curtailing inflation and raising the size of the economy to Rs350 trillion, but the worsening current account deficit in the wake of dwindling exports and rising imports poses challenge for the national economy.

While launching the Economic Survey for 2016-17, Minister for Finance Ishaq Dar said on Thursday that Pakistan would not be required to go back to the IMF programme even after 2019. “I don’t know who will be in the government in 2019 but I think that there will be no need to go back to the IMF programme,” Ishaq Dar said while addressing a news conference.

“I am not going to present a five-year strategy in my budget speech on Saturday (tomorrow) in order to give a roadmap. There should be no petty politics on economic agenda and we all will have to work together to achieve the collective objective of bringing betterment in the economy. We should devise mechanism whosoever comes into government should pursue the agreed reforms agenda on economic front,” he said.

Per capita Income in dollar terms, the minister said, has witnessed a growth of 6.4 percent in FY 2017 as compared to 1.1 percent last year. The per capita income in dollar terms  has increased from $1,531 in FY 2016 to $1,629 in FY 2017. Main contributing factors for the rise in per capita income are the higher real GDP growth, low population growth and stability of Pak rupee.

Presenting the performance of four years of the government, the minister said that the GDP growth was showing upward trends, inflation was curtailed below 5 percent and budget deficit was brought down from 8.2 percent of GDP in 2012-13 to 4.2 percent projected for the outgoing fiscal year. The minister said that the government would continue focusing on exports and zero rating regime for export oriented sector would continue to stay in the coming budget. The exports, he said, fetched $17.91 billion in July-April period of FY 2017 against $20.4 billion in the same period of the last financial year but he projected the overall exports for the whole financial year till end June 2017 would bring exports at $21.76 billion. Imports are projected to touch $45.48 billion for the ongoing financial year. 

The minister said that Pakistan’s GDP growth crossed 5 percent of GDP after 10 years and touched 5.28 percent. He said the economic growth remained hovering around 3 percent during the PPP-led tenure from 2008 to 2013 and it went up to 4 percent during the last three years rule of PML-N, but it crossed 5 percent in 2016-17.

“Our economy is underestimated by 20 percent and we have authorised the World Bank to accomplish its study in eight to 12 months period to ascertain the facts,” he said, and added that China’s economy was underestimated by 24.8 percent.

Economy of Pakistan has continued the growth momentum as the GDP growth reached 5.28 percent in 2016-17 which is the highest in 10 years, on the back of rebound growth in agriculture which registered a growth of 3.46 percent against 0.27 percent last year. Industrial sector witnessed the growth of 5.02 percent against 5.80 percent last year, large scale manufacturing posted growth of 4.61 percent against 3.29 percent last year, while services sector surpassed its target and recorded 5.98 percent growth as compared to 5.55 percent last year. The share of commodity producing sector has reached to 40.41 percent of GDP during the outgoing FY 2017 as compared to 40.80 percent last year. It grew by 4.3 percent during FY 2017 as compared to 3.0 percent during FY 2016.

Industrial sector contributes 20.88 percent in GDP. This year it recorded a growth of 5.02 percent as compared to 5.80 percent last year. Manufacturing is the most vibrant sub-sector of the industrial sector having 64.4 percent contribution in the industrial sector and in GDP it accounts for 13.45 percent. Manufacturing sub-sector is further divided in three components including large-scale manufacturing (LSM) with the share of 51.26 percent in industrial sector, small scale manufacturing share of 8.80 percent, and slaughtering contributes 4.34 percent.

Wholesale and retail trade sector contributes 18.50 percent in GDP and is also the largest sub-sector of the services having share of 31.1 percent in the services sector. Wholesale and retail trade recorded a growth of 6.82 percent against the target of 5.5 percent, whereas it grew at 4.25 percent last year.

Total investment has reached to the level of Rs5,027 billion as compared to the Rs4,527 billion last year, showing the growth of 11.04 percent in FY 2017. Investment to GDP ratio has reached 15.78 percent in FY 2017. Fixed investment has increased to Rs4,517 billion as compared to Rs4,061 billion last year, and recorded growth of 11.23 and fixed investment as percentage of GDP is recorded at 14.18 percent. Private investment has registered a growth of 6.63 percent and private investment as percentage of GDP reached 9.90 percent. Public investment grew by 23.55 percent and as percentage of GDP it has increased from 3.79 percent to 4.28 percent. Public Sector Investment increased by Rs1,363 billion in FY 2017 compared to Rs1,103 billion in FY 2016.

The external debt and liabilities are projected to touch $75.7 billion, shows the Economic Survey. However, the minister said that the public debt contained borrowings of the federal and provincial governments and signed by the Economic Affairs Division. He said that gross public debt was standing at Rs20,872 billion as at end March 2017 while net public debt was Rs18,893 billion. Gross public debt recorded an increase of Rs1,194 billion during first nine months of current fiscal year. Out of this total increase, increase in domestic debt was Rs1,121 billion while government borrowing from domestic sources for financing of fiscal deficit was Rs1,018 billion. Similarly, increase in external debt contributed Rs73 billion in public debt. Revaluation gains on account of appreciation of US dollar against other foreign currencies reduced the impact of net external inflows on external public debt portfolio.

The Pakistani economy has been rapidly borrowing and since year 2013, it ballooned by 46 percent (or Rs6.55 trillion) to Rs20.872 trillion at present. If today Pakistan decides to retire all its public debt, then it has to forego around two-thirds of its GDP, which is 67.6 percent of its GDP. Pakistan’s volume of GDP is Rs31.86 trillion at present. 

It indicates that every Pakistani is indebted with Rs104,516 which is several times more than what the government spends on health and children education. In 2001, Pakistan public debt (external and domestic) was at Rs3.68 trillion that almost doubled to 6.126 trillion in 2008 when General Pervez Musharraf left the power, but at the end of five-year PPP-led government in 2013, it rose to 14.318 trillion. So far in Nawaz Sharif government, it jumped to Rs20.872 trillion.

Economists believe that the public debt of an economy increases when it is unable to meet its expenditures through own resources (tax and others) and to bridge the gap (that is called fiscal deficit), it borrows more from local and foreign lenders. 

Interestingly, on debt servicing (paying interest and principal amount), the government has spent huge amount of 1.41 trillion rupees during July-March 2016-17. The amount Pakistan paid for its servicing is 45 percent of the country’s revenue against 46 percent last year. Generally, total public debt servicing below 30 percent of government revenue are believed to be within the bounds of sustainability. It should be below this to allow the government to allocate more resources towards social and poverty related expenditures. During these nine months, on external debt servicing (payment of interest) Rs84.6 billion was spent while Rs315.6 billion of principal amount was retired. On domestic debt servicing, Rs1.009 trillion was spent.

Domestic interest payments constituted around 71.6 percent of total debt servicing, which is due to increasing volume of domestic debt in overall public debt portfolio.