ISLAMABAD: The Finance Ministry has admitted that the economic activity in the country is primarily being driven by consumption given low investment. Sources told Business Recorder that it was acknowledged in the budget paper that the economy is witnessing a decline in investment and increase in consumption. For an economy like Pakistan, the share of investment as percentage of national production is low as investment to GDP ratio was registered at 12.5 percent in 2011-12.
India's investment to GDP ratio was 37 percent in 2010-11, in Bangladesh the ratio was around 25 percent, and in China the ratio was close to 50 percent. Because of low investment, economic activity is primarily driven by consumption. The economy is witnessing sustained increase in consumption. The currency in circulation has increased by 70 percent since 2007-08 due to increase in government borrowing. In addition, transfer of income to rural sector through increase in wheat support prices, increase in remittances and income support programmes have also led to an increase in levels of consumption.
Finance Ministry suggested that the strategy in the medium-term requires strong policies to be adopted towards increasing investment and reducing consumption (as proportion of GDP) in coming years. The consumption was projected at 93.9 percent of the GDP in the budget for the current fiscal year which has been revised upward to 94.5 percent and investment has been revised downward to 12.6 per cent for the current fiscal year from 13.1 percent estimated in the budget. Overall industries are running below capacity despite the fact that consumption has increased from 89 percent of GDP in 2007-08 to 94.5. The domestic demand is consistently growing (by around 19 percent since 2007-08).
The working below capacity signifies production and investment constraints. Production constraints include inadequate supply of energy and skilled labour, while investment constraints are primarily due to non-development expenditure, low foreign inflows and depressed productivity due to energy shortages and adverse security situation in and around the country, the ministry added.