Pakistan rejects WB’s GDP assessment as unrealistic

ISLAMABAD: The government on Friday termed World Bank’s (WB) assessment regarding easing the GDP growth rate forecast for Pakistan’s economy down to 3.5 percent as ‘unrealistic’.

The Ministry of Finance stated this in a detailed response to the WB’s latest “The latest South Asia Economic Focus” titled “Shifting Gears: Digitization and Services-Led Development”, whereby it assessed that GDP is estimated to have grown by 3.5 percent in the fiscal year 2021, an upward revision of 2.2 percent age points compared to the last forecast.

The report further added that: “The GDP growth is expected to ease to 3.4 percent in the current fiscal year, as both expansionary and monetary policy measures are expected to unwind”. Similarly, the report mentions that fiscal and monetary tightening is expected to resume in FY22, current account deficit is expected to widen due to higher imports owing to increased economic activities and oil prices, while the inflation is projected to edge up with expected domestic energy tariff hikes and higher oil and commodity prices.

With regard to World Bank’s growth estimates of 3.5 percent in FY2021 against National Accounts Committee (NAC) estimates of 3.94 percent, released by the Pakistan Bureau of Statistics (PBS), it is mentioned that the WB estimates are based on unrealistic assessment.

The provisional estimate of GDP growth for FY2021 was 3.94 percent based on 2.8 percent growth in Agriculture, 3.6 percent growth in industry and 4.4 percent growth in services.

However, large-scale manufacturing (LSM) growth was provisionally taken as 9.3 percent in NAC for estimating GDP growth of 3.94 percent. LSM data is available with a two-month lag and the recent data released by PBS on LSM recorded growth of 15.2 percent for FY2021.

Further, recent data on crops mentioned by Federal Committee on Agriculture (FCA) suggest the production of important crops is higher than taken in NAC, 2021. Wheat production is recorded at 27.5 million tons as compared to 27.3 million tons, while production of maize is 8.9 million against 8.5 million tons released by PBS for estimating GDP growth 3.94 percent. After incorporating the latest available information, the GDP growth in FY2021 will improve further above 3.94 percent as compared to 3.5 percent estimates by the WB.

For FY2022, WB projection of 3.4 percent for GDP growth is again underestimated. It is pertinent to mention that economy of Pakistan has shown V-shaped recovery in FY2021 without creating any external and internal imbalances.

The government said it was committed to ensure that the growth momentum remains intact with macroeconomic stability.

Thus, it is expected that GDP growth for FY2022 will remain close to 5 percent.

In this context it is worth mentioning that global GDP growth rate in 2020 was recorded at -3.2 percent and is projected to grow by 6.0 percent and 4.9 percent in 2021 and 2022 respectively.

On the basis of fast recovery expected globally, especially Pakistan’s main trading partners, it is expected to be translated to the domestic economy as well.

Domestically, the production of important crops is encouraging like sugarcane 87.7 million tons (81.0 million tons last year), rice 8.8 million tons (8.4 million tons last year), maize 9.0 million tons (8.9 million tons last year), and cotton 8.5 million tons (7.1 million tons last year). While the target for wheat is set at 28.9 million tons (27.5 million tons last year).

Further, the government said it was taking measures to enhance agriculture performance such as Agriculture Emergency Program, Agriculture Transformation Plan, Prime Minister Kharif Package, incentives to the Livestock sector and increase in wheat support price.

Better crop production together with government’s measures, it is expected that the agriculture sector will perform better. Within industry, LSM recorded a growth of 2.3 percent in July FY2022. Due to the closure of industrial activities during holidays in Eid-ul-Azha and monsoon rains which spread over 15 days.

Further, domestic cement dispatches increased by 3.92 percent to 11.279 tons during July-September FY2022 (10.853 tons last year).

Car production and sales increased by 111.7 percent and 92.8 percent respectively during July-August FY2022, while tractor production and sales increased by 38.7 percent and 18.5 percent respectively. Similarly, total oil sales increased by 21 .0 percent to 5.8 million tons during July-September FY2022 (4.8 million tons last year). The performance reflects robust economic activities without any disruption. To further boost the industrial sector, government said it was taking all possible measures like special package for construction sector, relief measures in form of tax exemptions to auto sector, special economic zones, special technology zones, special facilitation for SMEs in form of risk sharing in collateral free lending, sales tax concessions to cottage industry, concessional rate of refinance schemes including EFS and LTFF, special electricity tariffs for industrial use, making CPEC the platform where industries will be relocated, reduction in tax on textile products and tax relief to oil refineries so that they could turn to Euro-5 fuel.

These measures would help in significant growth in industry, the government said. Overall, the commodity producing sector would perform better and its spillover impact would be realised on the services sector.

The current data for June 2021 shows that YoY growth in assets remained 18.9 percent. Further an increasing trend is seen in both advances and deposits of banks. Thus, services sector is projected to continue its growth on account of better performance of Agriculture, Industry and financial sector. Further, mass vaccination of general public will also have significant impact on the recovery of other private services in particular and services in general.

Regarding monetary and fiscal tightening, it must be mentioned that, on one hand the government is tightening monetary and fiscal policies to contain the demand pressures, while on the other it is encouraging growth supporting policies as mentioned above.

With regard to pressure on external accounts, it needs to be noted that the economy is in recovery phase, growing economy and exports require import of capital goods, which leads to increase in imports. Due to government policies, exports of goods and services will maintain its trend on average $3 billion/month and remittances $2.5 billion/month, taking into account the other secondary and primary income flows, trade deficit and current account will remain in sustainable range. Moreover, SBP is proactively taking measures to curb non-essential and luxury imports and other foreign exchange regulatory measures for the sustainability of external sector.

Regarding inflation, it is to mention that the present government has taken various policy initiatives, administrative actions, and relief packages to control the inflationary pressure mainly derived from global market commodity prices. The higher international food prices were transmitted to countries, net importers of food. But due to prudent and pro-poor measures taken by the government of Pakistan, proportionate rise in prices of commodities i.e., sugar, palm oil, soybean oil, wheat, and crude oil was not passed on the domestic consumers as reflected below.

The government is also expanding the network of Sasta Bazars and Utility Stores outlets for provision of smooth supply of daily use items. National Price Monitoring Committee (NPMC) and District Price Control Committees are actively monitoring the prices of essential items all over the country to ensure their availability at reasonable prices. Government is also committed to establish USC outlets all across the country in order to provide relief to common man. In this regard, USC was already directed to establish USC outlets in Balochistan. All these measures will help contain the inflationary pressure in the country. In order to ensure the smooth supply of essential food items and to reduce the inflationary pressures, the government is building strategic reserves. In addition, government’s agriculture facilitation measures and encouraging performance of major and minor crops will further ease out the inflationary pressures as it will further increase supply of food items in the market.

It is important to mention here the prices in international market are on declining trend during the month of September 2021 compared to August 2021 i.e., Sugar 0.0 percent, Soybean oil -2.4 percent and Wheat -4.6 percent, which augur well for domestic prices of the country.

With regard to crude oil prices, Energy Information Administration (EIA), US, expects Brent prices will remain around $70/b during the fourth quarter of 2021 (4Q21).

“In 2022, we expect that growth in production from OPEC+, US tight oil, and other non-OPEC countries will outpace slowing growth in global oil consumption and contribute to Brent prices declining to an annual average of $66/b. Thus, based on government proactive policies to reduce the inflationary pressure together with government’s growth-oriented policies, we expect that Pakistan will achieve growth target with price stability,” the Ministry of Finance concluded.