NationalVOLUME 15 ISSUE # 21

Economy: An all-round decline

Never has in its 70-year history Pakistan faced such unprecedented economic challenges. During the current fiscal year, the economy is estimated to have contracted by about 0.4 per cent against a growth target of 3.3pc. All targets for the real economy were missed this year by a wide margin. In fact, most of the indicators have moved in the opposite direction. Figures show that the GDP is now valued at around $265 billion compared to $280b last year and $313b at the end of 2017-18. The assessment of economic performance by the National Accounts Committee is based on the actual output data for the first three quarters along with coronavirus effects in the fourth quarter.

Similarly, per-capita income is said to have come down to $1,270 this year from $1,360 last year and about $1,650 in the year before, showing a cumulative decline of almost 23pc. On the other hand, tax revenue is likely to fall by 30pc against the budgeted target while the fiscal deficit could be in double digits. The fixed investment-to-GDP ratio is estimated at 13.8pc for the current year against the 14.2pc target — unchanged from last year’s 13.8pc.

It is important to note that all major sectors missed their growth targets this year. Both industry and services posted negative growth. Only agriculture remained in the positive zone. Public-sector investment has been calculated at 3.8pc of the GDP based on budget allocations for the development programme against the target of 4.1pc and is expected to significantly come down when computed on the basis of the reduced utilisation in the wake of lockdowns. However, against the general trend, the national savings-to-GDP ratio rose to 13.9pc, higher than 11.1pc of the GDP last year. This is attributed to a significant reduction in the current account deficit which fell almost 75pc to $2.78b in the first nine months of 2019-20. Other factors include an increase in exports and remittances and a decrease in imports and the trade deficit by 16pc and 31pc, respectively.

Sector-wise, agriculture posted growth of 2.67pc against the target of 3.5pc. It compares favourably with last year’s low 0.58pc growth. Analysed in detail, growth in important crops during the year remained 2.9pc against the target of 3.5pc. There was an increase in the production of wheat, rice and maize by 2.45pc, 2.89pc and 6.01pc, respectively. However, cotton and sugarcane crops witnessed a decline of 6.92pc and 0.44pc, respectively. Other crops (onion, potato, vegetables etc) showed positive growth of 4.57, higher than the 3.1pc target, mainly because of an increase in the production of pulses, oil seeds and vegetables. The livestock sector registered growth of 2.58pc and missed the target of 3.6pc. Forestry grew by 2.29pc, higher than the 2pc target. Last year, forestry had grown by  8pc.

On the industrial side, output declined for the second consecutive year. Against a 2.4pc growth target, the industrial productivity declined 2.64pc on top of a 2.27pc drop in 2018-19. The loss appears even greater in the context of 4.61pc growth it posted in 2017-18. Experts attribute it to the Covid-19–related lockdown of industrial units. The value added to the mining and quarrying sector declined by 8.82pc against the growth target of 2.5pc. The large-scale manufacturing (LSM) sector has been estimated to have shown a 7.78pc decline against the growth target of 1.7pc. A major decline has been observed in textile (-2.57pc), food, beverage and tobacco (-2.33pc), coke and petroleum products (-17.46pc), pharmaceuticals (-5.38pc), chemicals (-2.3pc), automobiles (-36.5pc), iron and steel products (-7.96pc), electronics (-13.54pc), engineering products (-7.05pc), and wood products (-22.11pc). Growth in LSM had been observed in fertilisers (5.81pc), leather products (4.96pc), rubber products (4.31pc) and paper and board (4.23pc). The electricity and gas sub-sector also grew 17.7pc mainly due to higher subsidies and better value added in Wapda and power companies. The construction activity has risen 8.06pc owing to an increase in the general government expenditure.

The services sector, which has consistently done well over the last several years, went into the negative zone. It contracted by 0.59pc against the target of 4.8pc growth and actual growth of 3.75pc in 2018-19 and 6.35pc in 2017-18. Negative 0.59pc performance by the services sector is attributed to a 3.42pc fall in wholesale and retail trade instead of the targeted 3.8pc growth rate as well as a 7.13pc decline in transport and communication services against the target of 3.5pc. Most of other services also remained in the positive territory. For example, finance and insurance services grew 0.79pc against the target of 6.5pc. The housing sector grew 4.02pc against the 4pc target while general government services grew 3.92pc against the 5.7pc target. Other private services grew 5.39 against the target of 7.1pc.

Against the daunting figures it is really a hard task to frame a balanced budget. Let us see how the country’s economic managers juggle their options to maintain the growth momentum, while also giving relief to the common man.