Govt eyes sustainable growth, end to boom-bust cycles

ISLAMABAD: Finance minister Miftah Ismail said on Thursday PMLN-led coalition government would pursue a balanced and sustainable economic growth and avoid a return to the cycles of boom and bust that led to financial crisis in the country.

“We have got an economy just in ruined shape where the GDP growth paved the way for the balance of payment crisis,” Miftah said at the launched of Economic Survey 2021-22.

The minister said the higher GDP growth of 5.97 percent in the ongoing fiscal year of 2021-22 achieved after rebasing national accounts, which raised the budget and current account deficits.

Although, the country’s GDP growth surpassed the envisaged target of 4.8 percent and stood at 5.97 percent for the outgoing fiscal year, inflation exceeded its desired target of 8 percent and climbed to 11.3 percent on average during the July-May period.

“Our imports are going to touch $77 billion, highest ever in the country’s history as it went up by 49 percent, while exports increased by just 28 percent,” the minister said.

Flanked by Federal Planning Minister Ahsan Iqbal, Power Minister Khurram Dastgir, Minister of State for Finance Aisha Ghaus Pasha, Federal Secretary Finance Hamid Yaqoob and Ministry of Finance’s Economic Advisor Dr Imtiaz, Miftah said the country has lost an opportunity to achieve higher growth in the aftermath of Covid-19 pandemic at sustainable levels.

In FY2022, the real GDP growth remained at 5.97 percent. However, underlying macroeconomic imbalances and associated domestic and international risks have dampened celebrations.

This high growth is also accompanied by external and internal imbalances, as has been the case historically with Pakistan’s economy. However, external circumstances also played a critical role this time.

He also said the government took bold decisions of hiking petrol and diesel prices by Rs60/litre to avert an “imminent default”. Debt servicing which stood at Rs1,600 billion till 2017-18 would now consume Rs3,900 billion in the next budget.

Current account deficit, budget deficit, investment, and savings ratio in the percentage of GDP missed out the desired target for the outgoing fiscal year. The size of the country’s economy touched $383 billion and per capita income stood at $1798 in 2021-22.

Minister Miftah hoped that the government would present a budget for 2022-23 paving the way for striking staff level agreement with the International Monetary Fund (IMF) within the ongoing month.

He also hinted that tax exemptions would also be abolished in the coming budget. “The central bank reserves would go up to $12 billion till Monday or Tuesday after receiving $2.4 billion commercial loans from China,” the minister said.

The economy of Pakistan rebounded from the pandemic (0.94 percent contraction in FY2020) and continued to post a V-Shaped economic recovery which is higher than the 5.74 percent recorded last year (FY2021).

For FY2022, real GDP (GVA at basic prices 2015-16) posted a growth of 5.97 percent on account of 4.40 percent growth in agriculture, 7.19 percent growth in the industrial sector, and 6.19 percent growth in the services sector.

This growth is slightly above the growth of 5.74 percent recorded for FY2021. For FY2022, GDP at current market prices stands at Rs66,950 billion showed a growth of 20.0 percent over last year (Rs55,796 billion). In dollar terms, it remained at $383 billion.

Regarding per capita income in terms of dollar, there was a rebound seen in FY2021 which continued in FY2022. In FY2022, per capita income was recorded at $1,798 which reflects an improvement in prosperity due to the fact that economic growth per person improved.

Fiscal deficit, said the minister, was projected to go up to Rs5,600 billion, and with revenue surplus of the provinces, the federal government’s budget deficit might be curtailed at Rs5,000 billion.

Consumer price index (CPI) inflation for July-May FY2022 recorded at 11.3 percent as against 8.8 percent during the same period last year. Other inflationary indicators like sensitive price indicator (SPI) recorded at 16.7 percent as against 13.5 percent last year. Wholesale price index (WPI) recorded at 23.6 percent in July-May FY2022 compared to 8.4 percent in the same period last year.

Pressures on headline inflation could fairly be attributed to adjustment in prices of electricity and gas, a significant increase in non-perishable food prices, exchange rate depreciation along with rapid increase in global fuel and commodity prices.

Despite the encouraging export performance, the country’s imports have also risen significantly. The broad-based surge in global commodity prices, Covid-19 vaccine imports, and demand-side pressures, all contributed to the rising imports. Resultantly, the trade deficit grew 49.6 percent to $32.9 billion, a historic high.

Remittances that ease the pressure of trade deficit of both goods and services, recorded at $26.1 billion during July-April FY2022 and posted a growth of 7.6 percent. This highest ever level of remittances was still not sufficient to offset the trade deficit. Thus, the current account deficit was recorded at $13.8 billion during the period under discussion.

Further, the low performance of the financial account during the period not only resulted in the depletion of foreign reserves but also brought the exchange rate under pressure. Interbank rupee-dollar exchange rate depreciated 15.1 percent during July-April FY2022. The SBP’s reserves also came under pressure Q2 onwards, dropping from $5.9 billion during the review period to $10.5 billion by end-April 2022.

Total public debt was recorded at Rs44,366 billion by March end. Domestic debt was recorded at Rs28,076 billion, while external public debt was recorded at Rs16,290 billion or $88.8 billion by March end. Total interest servicing was recorded at Rs2,118 billion during the first nine months against its annual budgeted estimate of Rs3,060 billion. Out of this total, domestic interest payments were Rs1,897 billion and constituted around 90 percent of total interest servicing during 9MFY22, which is mainly attributable to a higher volume of domestic debt in the total public debt portfolio.

In Pakistan, the investment to GDP ratio is stuck between 14 to 15 percent, thus placing it 133 among 151 countries for year 20211. Even in Bangladesh, the investment to GDP ratio is 30.5 percent.

Pakistan remained trapped in a low-saving and low-investment situation, which has constrained its economic potential. Economic conditions remained discouraging for both domestic and foreign direct investment.

In FY2022, high growth was due to high foreign savings (current account deficit) resulted in low domestic and national savings. Thus, current savings and investment level is insufficient to boost growth momentum.