Economic survey

The cliche of the country’s economy is that if it goes for growth it gathers deficits, if it doesn’t it slows down. Our boom and bust cycle seems to have been frozen in time. A true economic turnaround is only possible after this cycle is busted. The estimated near 6 per cent growth notched during the outgoing FY2021-22 proved a bane for the beleaguered economy. Push came to a shove and the country started moving straight towards a balance of payments and current account deficit crisis. The bottom line is that firing up growth is not an achievement, sustaining it is. The Economic Survey 2021-22, unveiled by Minister for Finance Miftah Ismail, shows the economy grew at a rate of 5.97 per cent against the targeted 4.8 per cent after the rebasing of national accounts. The rebasing of national accounts from 2005-06 to 2015-16 jacked up the GDP growth figures substantially. So comparing the provisional GDP growth rate of 5.97 per cent on the basis of new national accounts and the fixed target of 4.8 per cent on the basis of old rebase is pointless. In the modern world, both the GDP growth figures are calculated on the basis of fresh and old bases for comparison, because if not done it would simply be like comparing apples with oranges. So it is established that the economy surpassed the envisaged target of 4.8 per cent (as the target is fixed under the old base so it might not be truly comparable) with margin and registered growth of 5.97 per cent. This growth was bolstered by the agriculture, industry, and services sectors that also surpassed their respective sectoral targets.

In the outgoing fiscal year, the agriculture sector posted a growth of 4.4 per cent mainly due to 6.6 per cent growth in crops and 3.3 per cent growth in livestock. The industrial sector recorded a growth of 7.2 percent, while the services sector still constitutes the largest share of 58 per cent in GDP. Furthermore, large-scale manufacturing growth during July-March FY2022 increased 10.4 per cent. Total tax collection (federal and provincial) grew by 28.1 per cent to reach Rs4,821.9 billion during July-March FY2022. Total development expenditure increased significantly by 54.6 per cent to Rs1,032.7 billion in July-March FY2022. FBR tax collection during July-May FY2022 increased by 28.4 per cent to Rs5,348.2 billion. Trade deficit increased by 49.6 per cent in July-April FY2022 to $32.9 billion. During July-April FY2022, the current account posted a deficit of $13.8 billion. However, the low quality but higher provisional GDP growth trajectory heavily relied upon increased consumption and imports and did not create jobs or dent poverty.

Pakistan’s economic history thus repeated itself. This flawed growth exposed the country to mammoth twin deficits. The PTI government’s first finance minister Asad Umar had said their performance should be judged on whether they would be able to overcome structural problems in the economy as higher growth in the past had always created imbalances on the internal and external fronts of the economy. The growth rate of 5.97 per cent did the same damage. The country had to rely upon foreign savings, which widened the budget deficit and paved the way for higher current account deficit. The current account deficit for July-April FY2022 remained $13.8 billion against the deficit of $0.5 billion last year. However, all the economic ills are rooted in the structural problems that are nowhere on the radar of the decision-makers. Without removing structural bottlenecks, the country has set a GDP growth target of 5.01 per cent for the next budget. During the National Economic Council meeting, Prime Minister Shehbaz Sharif wished the growth target be set at 6 per cent without understanding its repercussions on macroeconomic imbalances. The finance wizards explained it would require changing the whole macroeconomic framework that the government aimed to disarm the IMF with. Hitting the nail on the head, the state minister for finance said the economy was overheating and needed cooling down to address structural imbalances.

Pakistan’s policymakers seem to be quite innocent to the gravity of the prevailing macroeconomic crisis. The country’s foreign currency reserves have slumped from $20 billion in August 2021 to $9.7 billion in May 2022. They seem to be quite indifferent to the consequences of defaulting on international debt payments. It will take countless sleepless nights of smart indefatigable number-crunching to forge short-, medium- and long-term strategies to pull the country through the economic crisis.