The Economic Survey 2018-19

Lack of ownership by the Advisor to the Prime Minister on Finance Dr Hafeez Sheikh is patently evident in the contents of the Economic Survey 2018-19 as it compares achievements with targets set not by the Khan administration but by the Shahid Khaqan Abbasi administration in the 2018-19 budget (presented more than two months before the end of the year in April 2018) and widely classified as an election year budget.
However, in defence of the incumbent administration for poor indicators in the current year the Advisor and the Survey laid the blame on the previous administration - a valid charge with respect to the massive rise in external borrowing (Sheikh stated it was actually 97 billion dollars but he was rounding it off to 100 billion dollars - a difference of 3 billion dollars, a massive amount of rounding off) coupled with a grossly overvalued rupee during the previous administration. However performance of the productive sectors including industry, agriculture and services, rests with the policies of the present government.
Large-scale manufacturing (LSM) sector registered a 2 percent decline during the first nine months of the current year, a trend that can be projected to continue, due to uncertainty with respect to: (i) the cost of capital. Effective 21 May 2019 the State Bank of Pakistan (SBP) raised the discount rate by 150 basis points to 12.25 percent as a 'prior' International Monetary Fund (IMF) condition; and the market is unsure of further raises in discount rate committed by the economic team to the IMF; (ii) bill for import of raw materials of the manufacturing units is rising due to the erosion of the rupee (again an outcome of the 'prior' condition to adopt a market based exchange rate); (iii) utility prices (electricity and gas) were raised late last year to achieve full cost recovery (inclusive of sustained mismanagement of the sector, interest charges on loans incurred by the sector payable by consumers and the failure to contain the circular debt) and again it is unclear how much more rate rise has been agreed between the economic team and the IMF; and (iv) raise in taxes and withdrawal in zero rating of five major export industries in the budget today.
Construction sector, the Survey acknowledges, declined due to the Khan administration's decision to curtail Public Sector Development Programme (PSDP), with a commensurate impact on the growth rate, and the re-imposition of the ban on non-filers to purchase real estate/cars in November 2018.
So what accounted for a rise in manufacturing output by 1.4 percentage points? The rise in electricity generation and distribution posted a 40.5 percent growth, credit for which is being taken by the previous administration with respect to generation however the incumbent government claims that it has reduced theft amounting to 81 billion rupees though there are no independent sources of verification.
Agriculture output of major and some minor crops declined, a sector that remains hostage to weather conditions in Pakistan with a wide margin between yields of rich landlords and subsistence farmers; however last year water scarcity added a further dimension to reducing crop outputs. The flawed policy of the PML-N administration was continued by the incumbent government which accounted for a persistent decline in the acreage under cultivation of cotton, a major export item as well as in use by the value added sector, leading to cotton imports Sugar surplus at a price that is higher than the international market could not be exported as the government withdrew export subsidies.
Services sector, the sector with the largest consistent growth rate, since more than three decades, registered a growth of 4.7 percent with general government and private sector surpassing targets by 8 and 7 percent respectively. However this mainly includes retail and wholesale trade (with a high percentage operating in the informal sector and inclusive of smuggling across our large porous borders) and transport (reliant on imported oil and products) - sub-sectors which are impacted by the rupee dollar parity as well as the rate of growth in the productive sectors.
Disturbing performance of a number of major macroeconomic indicators would require immediate remedial measures and includes: (i) general government consumption rose to 12.6 percent of Gross Domestic Product compared to 11.7 percent the year before during the tenure of the PML-N government which was in a pre-election mode; (ii) domestic savings declined to 4.2 percent of GDP compared to 5.1 percent the year before reflecting higher inflationary pressures; and private and public investment declined to 9.8 and 4 percent of GDP this year compared to 10.3 and 4.8 percent in the revised estimates of 2017-18; (iii) external debt repayment projections for next year are estimated at 10 billion dollars (though the IMF loan not yet approved by its Board has not been factored in and neither has the loan from friendly countries estimated at over 10 billion dollars); and (iv) decline in the per capita income to 1497.3 this year from 1652 as per revised estimates of 2017-18. A careful review of the budget would determine whether Sheikh will deal with any of these disturbing indicators or would he simply adhere to the IMF requirement of keeping within the stipulated primary deficit of 0.6 percent of GDP and ignoring or deferring all other issues to a later date - be it within six months, a year or a year and a half, so stated the Advisor quoting the Prime Minister inaccurately who had mentioned six months.
Dr Hafeez Sheikh was, as in his previous press briefing, flanked by the same group of 4 - Umar Ayub Minister for Power and Energy, Hammad Azhar Minister of State for Revenue, Razzak Dawood, Advisor to the Prime Minister on Commerce, Industries and Shabbar Zaidi, Chairman Federal Board of Revenue. They helped to deflect some questions that would otherwise have been directed at him however as Sheikh has refused to answer what he has committed the country to with the IMF until its Board approves the 6 billion dollar 39-month programme therefore his response to all queries were on performance by other players rather than himself.