The Asian Development Bank (ADB) has projected 4.5 percent growth rate for the Pakistan economy for the current fiscal year in its annual publication titled Asian Development Outlook. This downgrade in the growth rate from the budgeted 5.5 percent echoes, the press release issued by the International Monetary Fund on 4th February 2016 subsequent to the completion of the 10th mandatory review mission under the 6.6 billion dollar Extended Fund Facility which maintained that: "Although a weak cotton harvest, declining exports and a more challenging external environment are weighing on growth prospects, real GDP growth is expected to reach 4.5 percent in FY2015/16, helped by lower oil prices, planned improvements in the energy supply, investment related to the China-Pakistan Economic Corridor (CPEC), buoyant construction activity, and acceleration of credit growth."
The list of conditions that must be met to achieve the 4.5 percent growth rate include both external and internal factors. With respect to external factors it is relevant to note that the international price of oil registered an average of 33 dollars per barrel in March, higher than the 28 dollars per barrel in February, and the forecast is that the price may rise further. In addition, the CPEC envisaging a total of 46 billion dollars in the Memoranda of Understanding (MoUs) signed between the Chinese and Pakistani authorities does not specify a time line for the inflow of Chinese investment. According to data released by the Economic Affairs Division total disbursements from China in the current fiscal year amounts to 576 million dollars; however, Ahsan Iqbal, Minister for Planning, Development and Reforms, told Business Recorder that the Chinese companies are in the process of completing the requisite paperwork, without which they are not allowed to make any disbursements, and that once this is completed, expected within the next few months, the inflows would become considerable. However, it is unlikely that even if the paperwork is completed within the remaining three months of the current year for a considerable number of projects, inflows would be sufficiently high to generate the 4.5 percent growth rate.
The government has no doubt plans to increase energy supply through the LNG imports as well as through reducing transmission and distribution losses; however, mega hydel/coal generation projects are still in the works and unlikely to be brought on line before the end of the current fiscal year especially given that as we approach summer demand is going to increase manifold generating considerable load shedding.
And finally, the 2016 first quarter State Bank of Pakistan report noted the rise in credit and while the dominant borrower from the banking sector remains the government; however, the first quarter of the current year showed a noticeable increase in large-scale manufacturing (LSM) - from 2.6 percent last year to 3.9 percent - a rise attributed to (i) continued softening of international as well as domestic prices of industrial raw material; (ii) better energy management, especially gas supplies to fertilizer plants; (iii) a strong demand for construction material, such as cement and steel; and (iv) pick up in auto financing which helped achieve a higher growth in auto output.
This the SBP notes accounted for: (a) average gross disbursements during the first quarter were higher than in the comparable period of a year before; and (b) long-term loans (fixed investment loans) recorded a net increase of 27 billion rupees during the quarter against a net contraction of Rs 27.4 billion in the first quarter of the year before. It is this rise in LSM through a rise in credit that Finance Minister Ishaq Dar uses to justify his projection of 5.5 percent growth in the current fiscal year. However, the growth in credit is mainly for the LSM and the small and medium enterprises are not the beneficiaries implying thereby that the trickle-down effect of this credit rise has not filtered to the common man.
Independent economists, however, downgrade the growth rate to 3.5 percent at best, arguing that with non-oil import bill rising, with the oil bill expected to be higher in months to come, with heavier reliance on debt bearing foreign exchange reserves, a deficit that is likely to be higher than budgeted/projected due to the unlikelihood of realising the 65 billion dollars under the auction of 3G/4G. They further argue that the budgeted growth rate will be met only if the government continues to engage in data manipulation. It is indeed unfortunate that the PML-N government, like its predecessors, has engaged in data manipulation which has been easily spotted by the economists because it is not synchronised. For example, the growth rate of construction sector was shown a lot higher than its major input cement during the first year of the Sharif administration.
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