ISLAMABAD: The Ministry of Finance on Thursday disagreed with the World Bank’s revised forecast for Pakistan’s current year growth rate at 2.4 percent – 0.3 percent lower than June 2019 estimate – and said it expected economic recovery at the end of FY2020.
The Ministry of Finance and Planning Commission have forecast 4.0 percent growth target for 2019-20, whereas SBP projections look at a target of 3-4 percent for the fiscal year.
“The government’s extensive measures helped the economy move progressively along the adjustment path and stabilisation process, with an expected economic recovery at the end of FY2020,” a Finance Division statement said. “The government is focused on bringing improvement in the real sector growth through inclusive growth in agriculture, industrial and services sectors.”
The government was focused on reducing inflation, creating job opportunities, and achieving high growth rate. “Keeping in view the positive developments on major economic indicators, we expect that the economy will likely achieve better growth prospects as against the projections of the World Bank,” the statement added.
The World Bank in its report ‘2020 Global Economic Prospects’ forecasted Pakistan’s current year growth rate at 2.4 percent before touching 3.0 percent next fiscal year and 3.9 percent in FY2022. The bank’s report also mentioned that growth had decelerated at an estimated 3.3 percent in FY2018-19, reflecting a broad-based weakening in domestic demand.
In addition, the report described that significant depreciation of the rupee resulted in inflationary pressures, monetary policy tightening restricted access to credit, curtailing public investment to deal with large twin deficits and budget deficit rose more sharply than expected.
The ministry pointed out that during FY2019, the slowdown in economy was largely attributed to various policy measures to manage the twin deficit crisis. Consequently, these measures helped contain demand pressures and contributed to import compression. However, the outcomes of these measures were realised on the industrial sector. The LSM sector particularly witnessed a negative growth.
Simultaneously, high input costs along with water shortages weakened agriculture output and hence, the drag in the commodity-producing segments spilled over to the services sector as well. Resultantly, the real GDP growth recorded at 3.3 percent.
For growth in agriculture sector, wheat production target of 27 million tons has been given by the Federal Committee on Agriculture (FCA) in the last meeting held in October. In addition, National Agriculture Emergency Programme has been introduced in coordination with all provinces. It has approved 13 mega projects at the cost of Rs287 billion. Agriculture credit disbursement target for CFY20 has been set at Rs1,350 billion. Agriculture credit disbursement increased by 20 percent to Rs482 billion during July-November FY2020 against Rs402 billion last year.
Similarly, to boost the industrial sector, the government was providing a series of subsidies and incentives. These include subsidies to industry for electricity and gas, export development package to provide Long-Term Trade Financing (LTFF), and an Export-Refinancing Scheme (ERS) at subsidised rate.
Further, Public Sector Development Programme (PSDP) release process was simplified and up to January 3, 2020, Rs301.4 billion (Rs225.4 billion) were released to encourage construction related industries especially cement and steel. The government expects this to stimulate LSM growth in coming months. On fiscal side, to control expenditures, the government was following austerity measures with complete restriction on supplementary grants.
For export promotion several initiatives have also been announced such as support duty structure on raw materials and intermediate goods, improved mechanism for tax refunds, provision of electricity and gas at competitive cost, and making Pakistan part of the global value chain. Government’s various measures to stabilise the economy have already started to
reap benefits in the form of sustained adjustment in current account deficit (CAD) and continued fiscal prudence.
A brief review indicates that CAD reduced by 72.9 percent during July-November FY2020, fiscal deficit contained at 1.6 percent of GDP (Rs686 billion) during July-November FY2020.
Further, primary balance posted surplus of Rs117 billion during July-November FY2020 (0.3 percent of GDP), FBR tax revenues increased to Rs2,085.2 billion (16.4 percent) during July-December FY2020, ease of doing business improved, and Moody’s credit outlook of B3 stable was an affirmation of the government’s success in stabilising the economy and laying the foundations for robust growth.
