Lower growth

The government has reduced the GDP growth target for the fiscal year ending 2020 – from 3.3 percent to a paltry 2.6 percent. Though the recent outbreak of the coronavirus the world over has badly affected economies in most countries, the downturn in Pakistan’s GDP growth was anticipated even before Covid-19 reached Pakistan. Essentially it is the performances of both the agriculture and manufacturing sectors that have declined in the past two years resulting in a downturn in the GDP growth. The average GDP growth rate during the five years before the PTI-led government came to power was around five percent, with a peak performance of nearly 5.8 percent in the fiscal year ending in 2018. In those years, both the agriculture and the manufacturing sectors showed a better performance. Now according to the budget strategy paper (BSP) approved by the federal cabinet led by Prime Minister Imran Khan, the government has brought all GDP growth estimates downward to match more realistic projections by the IMF. Still the government envisions that the GDP growth in the next fiscal year of 2020-21 will see an uptick to reach three percent and then move up by around one percentage point every year to reach a five percent mark in 2023.

There are at least two factors that must be kept in mind while analyzing the changed scenario. First, if the two most important sectors of Pakistan’s economy don’t perform well it means these sectors are under pressure for various reasons. They may include higher policy rates, already decried by the business and industrial sectors. Second, the slow growth also means a lackluster business and trade environment in which people lose their jobs and both unemployment and underemployment increase. This in turn increases poverty rates in the country which already has at least a third of its population living below the poverty line. Then the excessive efforts of tax extraction from nearly all income groups in the shape of direct and indirect taxes further strains the economic prospects of the country.

It all boils down to a comprehensive breakdown of economic policies in which you keep changing the heads of the FBR and keep blaming various imaginary or real mafias, with a net result of reduced growth and more miseries for the people. So, this reduction in the growth target cannot be analyzed in isolation from other factors and indicators. A major overhaul in economic and financial approaches is needed, which is also directly related to our foreign policy in which we appear to be in a constant tug-of war with nearly all our neighbours.