The Survey

The Economic Survey 2013-14 assumed a greater relevance in the current fiscal year as it was released the same day as President Mamnoon Hussain's speech to the joint session of parliament. The President noted in his speech that "we are heading towards financial stability... during the last one year, the government's achievements are extremely impressive which include increase in GNP, continuous decrease in budget deficit, successful launch of Eurobonds, European Union grant of GSP plus, increase in remittances and increase in textile products".
The Survey released by Finance Minister Ishaq Dar provided data of key macroeconomic variables that strengthened the President's claims. However, there was data discrepancy between the GDP growth rate noted in the Survey and IMF claims made less than a month ago on 10th May during a joint press conference of the IMF mission Chief Jeffery Franks and Ishaq Dar. The GDP growth is measured either as the percentage rise in its commodity sectors (including agriculture, manufacturing and services sectors) or as a percentage rise in consumption, (government and private sector) investment, savings minus imports. Thus any discrepancy in GDP rates would indicate a discrepancy in the components' growth rate as well. Dar's insistence backed by the Survey that growth rate was 4.1 percent for the current year, against 3.7 percent growth last year, is at odds with Franks projection of the growth rate for 2013-14 at 3.3 percent though the Fund's website continues to show a growth rate of 3.1 percent.
Be that as it may, there are few who would challenge the Finance Ministry's contention that industry registered a growth rate of 5.84 percent (compared to 1.37 percent the year before) while large-scale manufacturing sector rose at a higher rate relative to the previous year when the PPP-led government was in power. However, the Survey does note that in March 2014 large-scale manufacturing growth fell by 2.7 percent in comparison to the previous year which begs an explanation as the fund of 1.5 billion dollars gifted to Pakistan by Saudi Arabia was credited in the last week of February. This injection improved the country's foreign exchange reserves however, the rupee appreciation and commitment by the Finance Minister that the rupee would remain within the range of 98 to 100 per dollar negatively impacted on exports - an impact that even a freshman economic student would have predicted. Ideally the Finance Minister should have allowed the State Bank of Pakistan (SBP), with the necessary expertise, to determine the rupee-dollar parity at which Pakistan's exports would not be compromised.
So which industry performed well in the current year? The survey claimed that electricity generation and distribution as well as gas distribution registered a growth of 3.72 percent as opposed to negative 16.33 percent last year. This is a new item in the Survey and one would assume that the PPP would challenge the negative 16.3 percent figure cited above. Construction grew by 11.3 percent as opposed to negative 1.68 percent last year and this rise, without doubt, is attributable to the massive increase in road projects - the Prime Minister's priority. Dar also noted that there was an increase in the number of companies registered by 13.97 percent indicative of a rise in business confidence. However, this figure is not supported by the decline in investment to 14 percent from 14.6 percent in 2012-13.
Services sector rose by 4.3 percent lower than the 4.9 percent in 2013-14. The why is evident: provincial governments began to improve their collections of sales tax on services. Jeffery Franks statement carried on the IMF website can easily be challenged by the Survey: "Led by large-scale manufacturing and services sectors, GDP will expand by about 3.3 percent in FY 2013-14, accelerating further to reach 4 percent next year" as LSM may decline post-March due to the decision to keep the rupee value within a narrow band and the decline in services sector growth.
At the same time it would surprise no one that agriculture growth was higher during the PPP-led coalition government relative to the PML-N government with the difference being the high support price favoured by the PPP government which led to higher food prices in spite of higher output while the PML-N government is not supportive of high support prices which may well account for lower growth. Thus in 2013-14 growth of farm sector decelerated to 2.1 percent from 2.9 percent the year before though last year's economic survey gives the provisional figure of 3.3 percent. Thus the indicators are not final as the year has yet to end and one would have to wait for the figures to be reconciled before taking this data as given.
So which sectors performed really well? Remittances continued to improve from 1,156.9 to 1,289.4 million dollars this year. Reserves improved mainly due to higher foreign inflows and with domestic debt retirement (procured at a higher rate of interest than foreign debt) the total stock of domestic debt registered 10.8 trillion rupees reflecting a slow down in its growth rate given the 9.5 trillion rupees the year before, which in turn was a jump from 7.6 trillion rupees total domestic debt in 2012. External debt, however, rose considerably to 8.8 billion dollars (July-March figures) in comparison to 1.27 billion dollars in 2012-13. If one estimates a five percent rupee depreciation per annum, a conservative estimate, then the actual payments on foreign loans would be a lot higher than the domestic debt, which does not have any foreign exchange risk.
Inflation, the Finance Minister stated, recorded 8.7 percent on average between July-April 2014 against 7.7 percent last year. This while reflecting the lower price of petroleum products as a consequence of the rupee appreciation does not reflect the fact that prices of all other items, including essential commodities, did not decline as a consequence. There is therefore a need for the government to further monitor prices. In addition, the IMF website notes that core and headline inflation are rising and the government has agreed to increase electricity prices - which would impact on prices of all items. Be that as it may, the decline in inflation is not supported by the decline in savings - from 13.5 percent last year to 12.9 percent this year as savings rise when inflation declines.