Photo courtesy PID
The economic team of the coalition government, led by Finance Minister Miftah Ismail, on Thursday released the Pakistan Economic Survey 2021-22, showing robust growth in the agriculture, industrial and services sectors, but warned that the real GDP growth of 5.97 percent in the outgoing fiscal was “unsustainable and has resulted in financial and macroeconomic imbalances.”
The Economic Survey is released annually ahead of the upcoming fiscal’s budget. This year’s report is particularly notable because it was presented by a finance minister who assumed charge after the review period ended (mid-April 2022). In a press conference, he regretted that Pakistan’s macroeconomic situation remained victim to boom-bust cycles. “Whenever the country records growth, unfortunately, it falls into a crisis of current deficit,” he said.
“The reasons for such volatile growth cycles include the wide-ranging economic challenges like shrinking fiscal space, exchange rate pressure, mounting current account deficit, inflation, energy sector bottlenecks, and the absence of a supportive environment for the private sector,” read the Economic Survey, adding that political instability had also instigated economic uncertainty. “Political stability can reduce uncertainty by making clear policy statements to build the trust of domestic as well as foreign investors and the business community,” it added.
Noting that the economy had gone through a V-shaped recovery by achieving real GDP growth of 5.97 percent, it said this was a result of growth of 4.4 percent, 7.19 percent, and 6.19 percent in the agriculture, industry, and services sector, respectively. According to Ismail, imports had spiked by 48 percent in the outgoing fiscal, adding that even though exports had also increased, the trade deficit now stood at $45 billion.
Reiterating that the ousted Pakistan Tehreek-e-Insaf (PTI)-led government had left “landmines” for the incumbent government—a reference to subsidies on fuel and electricity—the minister said the focus was now on fixing Pakistan’s economy by taking it toward sustainable growth. Referring to the Economic Survey, he said that the export-to-import ratio had declined from roughly 50 percent to 60 percent in favor of imports. Pakistan can only finance 40 percent of its imports through exports, he said, adding that the rest had to be funded through remittances or loans that provoked a balance of payments crisis.
Growth success
According to the Survey, the agriculture sector grew by 4.4 percent during the outgoing fiscal year, surpassing the 3.5 percent target. “This growth is mainly driven by high yields, attractive output prices and supportive government policies, better availability of certified seeds, pesticides, and agriculture credit,” it said, adding that important crops, other crops, and cotton ginning depicted a significant growth of 7.24%, 5.44%, and 9.19%, respectively, compared to 5.83%, 8.27%, and -13.08% growth last year.
Ismail stressed that inclusive growth was necessary for economic prosperity. “We always facilitated the elite so they could boost the industry and benefit the economy. This is one strategy, but when we provide privileges to the elite, our import basket gets heavier,” he said, adding rich people use more imported items than low-income individuals. By empowering low-income individuals, he said, the government could boost domestic and agriculture production without increasing its import bill. “This growth will be inclusive as well as sustainable,” he said.
According to the Survey, during the review period of July 2021-May 2022, exports increased by 27.8% to $ 28.8 billion against $22.6 billion last year. Imports, meanwhile, grew by 44.3% to $72.2 billion against $50 billion last year, leaving a trade deficit of $43.3 billion compared to $27.4 billion last year. Remittances, meanwhile, increased by 7.6% to $26.1 billion compared to $24.3 billion the previous year, while tax collection grew by 28.4% to Rs. 5,348.2 billion from Rs. 4,164.3 billion.
Inflationary pressure
The Survey noted that the government had been unable to maintain inflation at the 8 percent target, attributing it to an “abnormal” increase in global commodity prices, especially crude and edible oils. “It [April] is the sixth consecutive month when the inflation rate has remained in the double-digits. Consumer Price Index (CPI) in April 2022 stood at 13.4% on a year-on-year basis which was up from 12.7% in the previous month and 11.1% in April 2021,” it said, adding that food inflation had surged to 15.6% in urban and 17.7% in rural areas during April 2022. The average CPI Inflation was recorded at 11% during July-April FY22 compared to 8.6% in the same period last year.
According to Ismail, part of the crisis is a result of the previous government not inking long-term agreements for fuel supplies, forcing Pakistan to buy energy and oil at costlier rates. “This is not the PMLN, JUI-F, PPP, or the coalition government’s economy whose situation is worsening; it is the state of Pakistan that is seeing economic turmoil,” he said. He said foreign direct investment had also declined, coming in at around $1.25 billion in the first nine months of the outgoing fiscal year. The Survey said that FDI from July-April decreased by 1.6 percent from $1,480 million to $1,455.6 million.
“The problem in Pakistan is not that our import bill is a lot; the issue lies in our exports being less,” he said and slammed the PTI-led government for taking “massive” loans, adding that the government would need $3,100 billion for debt servicing this year and more than $3,900 billion next year.
Other salient features
The country’s oil import bill increased to $17.03 billion during the first 10 months of the outgoing fiscal, a harrowing jump of 95.9 percent compared to the $8.69 billion recorded in the same period last year.
The Survey has also revealed that only 1.77 percent of the GDP was spent on the education sector. However, it noted, the literacy rate had improved nationwide from 62.4 percent to 62.8 percent. In males, it went from 73 percent to 73.4 percent, while in women it went from 51.5 to 51.9 percent. Literacy rates increased in both rural (53.7 to 54%) and urban areas (76.1 to 77.3%), while provincially Punjab went from 66.1 to 66.3%; Sindh from 61.6 to 61.8%; Khyber-Pakhtunkhwa from 52.4 to 55.1%; and Balochistan from 53.9 to 54.5%.
According to the Survey, tax exemptions grew by 33.71 percent from Rs. 1.314 trillion to Rs. 1.757 trillion during the outgoing fiscal. It noted that the previous government had granted massive relief to industries and agriculture to boost their growth, while reducing income tax exemptions from Rs. 448.046 billion to Rs. 399.662 billion, a decline of 11 percent. However, sales tax exemptions rose by 75 percent to Rs. 1.014 billion due to exemption for imports.
The current account deficit till April 2022 stood at $13.8 billion against $0.5 billion last year, while total liquid foreign reserves exchange reserves hit $15.2 billion from $23.2 billion. Reserves of the State Bank of Pakistan declined to $9.3 billion from $16 billion last year, while the fiscal deficit was recorded at 4.9% of GDP against 3.6% of GDP last year.