According to a Business Recorder exclusive, the government has set a range of targets for the next fiscal year that are very ambitious and may prove a challenge to achieve with a Gross Domestic Product (GDP) growth rate of 5.5 percent (1.3 percent higher than the provisional estimates for the current year) backed by a 6.4 percent growth in manufacturing (a whopping 2.9 percent less than the provisional estimates for the current year), 1.9 percent higher growth in agriculture and 0.7 percent growth in services. It is praise worthy that the report highlights an entire range of risks that have formed the basis of frequent concern by independent economists over the sustainability of the improvement in some key macroeconomic indicators during the past two years: "the growth targets are subject to risks like deterioration in energy availability, extreme weather fluctuations, non-implementation of envisaged reform programme and fiscal profligacy." The addition of fiscal profligacy in the list raises serious questions about governance and one would hope be dealt with appropriately by the Cabinet.
The remaining risks focus on the failure of the government to fuel private sector productive activity in large scale manufacturing due to continuing energy shortages, and implicit in acknowledging this as a risk, is the admission of a failure to eliminate the circular debt (which has resurfaced to levels even higher than what the government inherited) and not improving governance in the sector by reducing transmission and distribution losses. In this context it is baffling that the electricity generation and gas distribution sector registered a mere 1.9 percent provisional growth rate in the current year (against the 5 percent target) - a decline that reports indicate is attributed to lower releases - a statistic that raises the question whether the projected growth of 6 percent in 2015-16 is realistic. Construction is expected to grow by 8.5 percent attributed to implementation of the $46 billion China-Pakistan Economic Corridor (CPEC). Construction growth rate for the current year is provisionally set at 7 percent, or the CPEC is expected to generate only a 1.5 percent higher growth in the forthcoming fiscal year indicating that the inflows under the CPEC are going to be much slower than the public has been led to believe.
Additionally, the relevance of extreme weather fluctuations on our farm sector is rationalized in the report by stating that "agriculture sector will continue its modest growth in the short run unless major changes in cultivation techniques pave the way for bridging the yield gap between conventional and progressive farming." This indicates little improvement in the sector including flood control and storage of flood waters.
Inflation in the current year is down to 3.6 percent due to a decline in the international oil prices according to the report - a fact that should have reflected favourably on domestic savings as the need to meet the kitchen budgets by households from their disposable income declines. Provisional national savings were 14.5 percent for the current year, compared to 13.7 percent in 2013-14, and are projected to rise to 16.8 percent next year though inflation is projected to rise by 6 percent. Since consumption has not been itemized into public and private it is unclear whether the rise in government consumption accounts for a slowdown in savings this year.
The identity between savings and investment had a deficit of 0.6 percent in the current year however fixed investment was stated at 13.5 percent of the GDP with appallingly low rates for public including government investment of 3.9 percent and private of 9.7 percent which the report admits is due to "long spells of power outages, deteriorating law and order situation and other regulatory bottlenecks kept them away from investment". Those who hailed the recent decision by the State Bank to lower rates to a historic 7 percent with the objective of promoting private sector investment must note the report's admission that "the SBP decision to ease monetary policy has not significantly impacted the investment climate suggesting that the problem lies with other determinants of investment."
The report also rightly acknowledged that the overvalued exchange rate with liquidity constraints (one would assume these encompass delays in refunds as well as a 36.6 percent rise in government borrowing from the scheduled banks crowding out private sector borrowing) eroded the competitiveness of exporters which resulted in negative growth in exports.
External resource inflows are estimated at 0.6 percent of the GDP in the current year to be raised to 1 percent next year. The report admits that despite a downward revision of annual target from 2810 billion rupees to 2691 billion rupees the Federal Board of Revenue would find it difficult to meet the revised target by 30 June this year. However, remittances continued to rise, by 16 percent in the current year, and were like manna (divinely supplied food) for a resource-constrained government.
So what is the likelihood of achieving these high growth rates in 2015-16? The report notes that it would require taking into consideration assumptions of better energy supplies, normal weather conditions, investors' positive sentiments. Harassment by taxmen - certainly would not help in higher investment. The gap between investment and savings as a percentage of GDP needs to be bridged for a sustainable growth. There needs to be greater coordination between policymaking and policy-implementation. And, the provinces need to push with centre in the same direction for obtaining better results. There has been an uptick in long-term fixed loans. However, the quantum is not enough and would not address the high incidence of joblessness. Pakistan's economic prospects (that have yet to be translated into arresting the decline in foreign direct investment) and political stability. The list is exhaustive and one hopes that growth is a major priority for next fiscal year as enunciated by the Minister of Finance recently to address, among others, the issue of massive unemployment which often leads to profound social unrest. The government will also be required to continue with the present policy to allow the rupee parity to find its market price on the basis of flows. Our economy must seek to compete with India's which has posted annual growth of 7.3 percent, overtaking China in the first three months of 2015.