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May 13, 2019

Slow growth

 
May 13, 2019

Before it came into power, the PTI would often speak about how the leadership of other political parties had caused Pakistan’s economic growth to come crashing down. Now that the numbers from its first year in power are close to being finalised, one wonders if the current government would have a similarly scathing assessment of its own performance. The biggest number tells the key story. GDP growth is expected to have fallen to 3.3 percent, instead of the 6.2 percent growth target for 2018-19. This means that economic growth has fallen to a nine-year low. Pakistan's economy has suffered major setbacks with almost all sectors failing to perform as per expectations. The fact that the PTI government has managed to reverse the upward trend in Pakistan’s economic growth within a year does not bode well for the coming years – especially based on the plans it has announced it will enact. All three major economic sectors – agriculture, industry and services – have performed badly. Agricultural growth lies at 0.85 percent, manufacturing growth lies at 1.4 percent, while the services sector showed 4.7 percent growth. The numbers don't tell a great story when put against the targeted growth of 3.8 percent, 7.6 percent and 6.5 percent respectively.

While there is little surprise in the numbers given that the warnings had already been delivered, how the major crops have shrunk should be investigated. Cotton, rice and sugarcane also saw negative growth between 3 and 20 percent. Based on data from six to nine months, it would be realistic to expect that the actual numbers will be lower than those projected currently. Mining and large-scale manufacturing actually fell by around 2 percent. Electricity and gas showed 40 percent growth, which could be put down to increasing tariffs and improved collection. Construction fell by 7 percent, which showed how much uncertainty there is in a year when so much hoopla was made about creating five million new homes. Instead, the reality is that construction activity showed negative growth, instead of the projected 10 percent growth figure. The shrinking of the manufacturing and agricultural sectors should raise questions about how the services sector managed to grow by around 4.7 percent.

With the government having promised import restrictions, it would be hard to see how services, wholesale and retail grew – unless there was an increase in profiteering by those in the services sector. All of this aside, there is another major number to contend with: the dollar value of Pakistan’s GDP has shrunk from $313 billion in 2017-18 to $280 billion in 2018-19. This is down to the devaluation of the Pakistan rupee, which effectively means that by agreeing to more devaluation, the government is set to shrink the real value of economic activity in the country even further next year. In mild terms, the first year of the economy under the current government has been underwhelming.