EDITORIAL: The Economic Survey released as usual the day before the budget speech (today) does not, as expected by the rhetoric of the current economic team leaders, undermine the effort of the Khan administration, mentions the effect of the pandemic on global poverty levels, and impartially notes the reasons for inflation — internal and external including adjustments in prices of electricity and gas, rupee depreciation along with rapid increase in global fuel prices.
It mentions political uncertainty almost in passing but does note though it does not dwell on the fiscal adjustments that are required as are “reforms in almost every sector of the economy to lay the foundation of higher, inclusive and sustainable growth” — perhaps a not so oblique reference to the upfront harsh seventh review conditions that must be complied with in the budget for Pakistan to qualify for the next International Monetary Fund (IMF) tranche release to which “all roads lead” as per Finance Minister Miftah Ismail.
An overheated economy is the consensus of independent economists with the Economic Survey projecting a 5.97 percent growth rate on the back of: (i) agriculture, contributing 19.2 percent to GDP growth, grew by 4.4 percent.
However crop specific data in the Survey focused on actual output compared to the previous year while the Working Paper submitted for Annual Plan Coordination Committee (APCC) meeting also highlighted the shortfall against the target for the current year.
Cotton output showed a growth of 17.9 percent (provisional) in the Survey and the Working Paper showed negative 20.7 percent against the target (due to diversion of land from cotton to sugarcane production) with State Bank of Pakistan (SBP) data (July-April) showing that raw cotton imports were 1.86 billion dollars though part of the reason for imports is poor quality domestic cotton that is not contamination free. Wheat crop registered negative 3.9 percent over the previous year and negative 5.1 percent against the target accounting for unmilled wheat imports of 281.5 million dollars as per SBP website.
However, sugar output was positive 19 percent against the target and positive 9.4 percent against the previous year (though during July-April 188.6 million dollars worth of sugar was imported as per SBP and 32,888 million rupees July-March as per the Survey); maize output rose by 18.2 percent over target and 19 percent over the period last year (used for animal feed) while rice output was 13.7 percent higher than the target and 10.7 percent higher than the previous year with around 2 billion dollars worth exported (partly reflecting the rise in the international price of commodities on the back of supply chain disruptions due to the pandemic and more recently due to the Russia-Ukraine war; (ii) the major contributor to agriculture growth remains livestock sector accounting for 60.89 percent of agriculture value addition and contributing 14.04 percent to GDP. It grew by 3.26 percent against 2.38 percent last year; (iii) industry rose by 8.98 percent with large-scale manufacturing the major contributor growing at 37.18 percent compared to the year before, electricity, gas and water supply by an abysmal 0.14 percent and construction after the significant incentives and amnesty scheme by 33 percent though accounting for less than 14 percent of total industrial sector output.
The largest increase was in automobile sector with car sales rising by 56.7 percent July-March 2020-21, trucks 77 percent, jeeps/SUVs/pickups 43.7 percent — deferred purchases due to pandemic; and (iv) services sector rose by 18.69 percent. In this context, it is critical to note that this sector is not only four times the value of the industrial sector but one-half consists of wholesale and retail trade (which rose massively in the current year subsequent to the lifting of lockdown during which purchases were delayed) and transport, storage and communications, all susceptible to fluctuations in the price of petroleum and products.
The foregoing suggests that the overheating of the economy is not only due to the growth in the services sector, mainly reflecting a rise in consumption patterns — private sector rose by 10.14 percent and government by 3.40 percent (against 1.82 percent the year before) — but also due to the widening trade deficit to nearly 45 billion dollars that could not be plugged with the rise in remittance inflows to 24 billion dollars July-March 2022 against 21.4 billion dollars in the comparable period the year before.
This necessitated borrowing from abroad and from the domestic market with the heaviest reliance on Pakistan Investment Bonds (at a rate a couple of percentage points higher than the policy rate that has been steadily rising and is at present 13.75 percent).
Current account deficit rose to negative 13.1 billion dollars July-March 2021-22 likely to rise to 16 billion dollars by end of the year with reserves plummeting to 9.7 billion dollars that Ismail stated will rise to 12 billion dollars as China releases 2.4 billion dollars loan.
Of further concern is the growth in tax revenue in the current year of 28.1 percent but this rise represents a decline in the percentage of GDP to 6.1 percent from 6.5 percent in the comparable period of the year before.
However the Survey inexplicably shows that total expenditure rose by 27 percent in the current year against the year before (July-March) however this was only 11.9 percent of GDP, lower by 0.7 percent from the year before while current expenditure budgeted at 19.2 percent of GDP was brought down to 11 percent this year against 10.9 percent the year before — or a mere rise of 0.1 percent subsequent to the relief package announced by the former Prime Minister, Imran Khan. Markup was budgeted at 3.8 percent of GDP but was reduced to 3.2 percent this year against 3.8 percent last year.
This data does not quite support the boom bust growth cycles mentioned in the Survey and emphasised by the Finance Minister in his press conference where he stated that the country was in a state of imminent default and after two months, the economy is embarked on the road to stability — a claim reminiscent of a former finance minister, Hafeez Sheikh, in 2020.
To conclude, the Survey does not reflect an economic treatise and not a political discourse as in the past and therefore must be welcomed.
Copyright Business Recorder, 2022
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