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Pakistan Economic Survey 2021-22

The State of Economy Carefully Surveyed

On June 09, Finance Minister Miftah Ismail unveiled the Pakistan Economic Survey 2021-22. This yearly flagship publication of the Ministry of Finance has presented a fair picture of the state of the country’s economy as it says the economic growth of Pakistan was recorded at 5.97pc as opposed to the target of 4.8pc. The GDP growth of 5.97pc is a combination of 4.40pc growth in agriculture, 7.19pc growth in industries, and 6.19pc growth in services against the targets of 3.5pc, 6.5pc and 4.7pc, respectively. This growth beyond targets represents a boom in all three major sectors of Pakistan’s economy.
However, although the 5.97pc growth in economy against the set target of 4.8pc is a good news in itself, it was dampened by widening deficits in trade and current account, unprecedented inflation rate and the free-falling currency value. All these factors point to an unsustainable economic growth. As the Finance Minister puts it: “Achieving growth was not an issue for Pakistan, the real issue is achieving sustainable growth.”
Key Highlights
· The real GDP posted a growth of 5.97pc
· For July-April FY2022, the current account deficit remained $13.8 billion against the deficit of $0.5 billion last year
· Investment-to-GDP ratio remained 15.1pc compared to 14.6pc recorded in FY2021.
· The agriculture sector posted growth of 4.4pc mainly due to 6.6pc growth in crops and 3.3pc growth in livestock.
· Industrial sector recorded a growth of 7.2pc in FY2022 compared to 7.8pc growth in FY2021.
· Services sector still constitutes the largest share of 58pc in GDP
· Large Scale Manufacturing (LSM) growth during July-March FY2022 increased by 10.4pc as compared to 4.2pc growth in the same period last year.
· Total revenues increased by 17.7pc and reached Rs 5,874.2 billion (8.8pc of GDP) in July-March FY2022 against Rs 4,992.6 billion (8.9pc of GDP) last year.
· Total tax collection (Federal & Provincial) grew by 28.1pc to reach Rs 4,821.9 billion during July-March FY2022 as compared to Rs 3,765.0 billion in the comparable period of last year.
· Non-tax revenues, on the other hand, fell 14.3pc to Rs 1,052.2 billion in July-March FY2022, compared to Rs 1,227.6 billion in the same period the previous year.
· Total expenditures grew by 27.0pc to reach Rs 8,439.8 billion in July-March FY2022 against Rs 6,644.6 billion last year.
· Current expenditures grew by 21.2pc to Rs 7,378.0 billion during July-March FY2022 as compared to Rs 6,085.4 billion in the comparable period of last year.
· Total development expenditure increased significantly by 54.6pc to Rs 1,032.7 billion in July-March FY2022 against Rs 668.0 billion in the comparable period of last year.
· The federal PSDP grew by 28.1pc to Rs 452.3 billion during July-March FY2022 against Rs 353.0 billion last year.
· FBR tax collection during July-May FY2022 increased by 28.4pc to Rs 5,348.2 billion against Rs 4,164.3 billion last year.
· During July-March FY2022, all the four provinces posted a combined surplus of Rs 599.8 billion against Rs 412.7 billion in the same period of last year.
· The fiscal deficit increased to 3.8pc of GDP (Rs 2,565.6 billion) during July-March FY2022 against 3.0pc of GDP (Rs 1,652.0 billion) in the same period of last year.
· The primary balance posted a deficit of Rs 447.2 billion against the surplus of Rs 451.8 billion during the period under review.
· During the period 1st July-20th May FY2022, the Net Domestic Assets (NDA) of the banking system witnessed an expansion of Rs 3,075.2 billion as compared to an expansion of Rs 645.7 billion during the comparable period last year.
· The benchmark KSE-100 Index opened at 47,356 points on July 1, 2021, closed at 44,929 points on March 31, 2022, and declined by 5.1pc in the first nine months of FY2022.
· The headline inflation CPI averaged 11.3pc during July-May FY2022 against 8.8pc in the comparable period last year.
· During July–April FY2022, the exports grew remarkably by 27.8pc and reached $ 26.8 billion dollars as compared to $21.0 billion in the same period last year.
· Imports stood at $59.8 billion in July-April FY2022 as compared to $43.0 billion in the same period last year grew by 39.0pc. The increase in imports is recorded in all the major groups.
· Trade deficit increased by 49.6pc in July-April FY2022 to $32.9 billion as compared to $22.0 billion in the corresponding period last year.
· During July-April FY2022, the current account posted a deficit of $13.8 billion against a deficit of $543 million last year.
· Total public debt was Rs 44,366 billion at end-March 2022.
· Domestic debt was Rs 28,076 billion and external public debt was Rs 16,290 billion or $ 88.8 billion at the end of March-2022.
· Total labour force is 71.76 million, out of which 67.25 million are employed and 4.51 million are unemployed.
· Import bill of oil increased by 95.9pc to $17.03 billion during July-April FY2022 compared to $8.69 billion during the same period last year.
Analysis
The Economic Survey does not, as expected by the rhetoric of the current economic team leaders, undermine the effort of the Khan administration, mentions the effect of the pandemic on global poverty levels, and impartially notes the reasons for inflation — internal and external including adjustments in prices of electricity and gas, rupee depreciation along with rapid increase in global fuel prices.
It mentions political uncertainty almost in passing but does note though it does not dwell on the fiscal adjustments that are required as are “reforms in almost every sector of the economy to lay the foundation of higher, inclusive and sustainable growth” — perhaps a not so oblique reference to the upfront harsh seventh review conditions that must be complied with in the budget for Pakistan to qualify for the next International Monetary Fund (IMF) tranche release to which “all roads lead” as per Finance Minister Miftah Ismail.
An overheated economy is the consensus of independent economists with the Economic Survey projecting a 5.97pc growth rate on the back of: (i) agriculture, contributing 19.2pc to GDP growth, grew by 4.4pc.
However crop-specific data in the Survey focused on actual output compared to the previous year while the Working Paper submitted for Annual Plan Coordination Committee (APCC) meeting also highlighted the shortfall against the target for the current year.
Cotton output showed a growth of 17.9pc (provisional) in the Survey and the Working Paper showed negative 20.7pc against the target (due to diversion of land from cotton to sugarcane production) with State Bank of Pakistan (SBP) data (July-April) showing that raw cotton imports were 1.86 billion dollars though part of the reason for imports is poor quality domestic cotton that is not contamination free. Wheat crop registered negative 3.9pc over the previous year and negative 5.1pc against the target accounting for unmilled wheat imports of 281.5 million dollars as per SBP website.
However, sugar output was positive 19pc against the target and positive 9.4pc against the previous year (though during July-April 188.6 million dollars worth of sugar was imported as per SBP and 32,888 million rupees July-March as per the Survey); maize output rose by 18.2pc over target and 19pc over the period last year (used for animal feed) while rice output was 13.7pc higher than the target and 10.7pc higher than the previous year with around 2 billion dollars worth exported (partly reflecting the rise in the international price of commodities on the back of supply chain disruptions due to the pandemic and more recently due to the Russia-Ukraine war; (ii) the major contributor to agriculture growth remains livestock sector accounting for 60.89pc of agriculture value addition and contributing 14.04pc to GDP. It grew by 3.26pc against 2.38pc last year; (iii) industry rose by 8.98pc with large-scale manufacturing the major contributor growing at 37.18pc compared to the year before, electricity, gas and water supply by an abysmal 0.14pc and construction after the significant incentives and amnesty scheme by 33pc though accounting for less than 14pc of total industrial sector output.
The largest increase was in automobile sector with car sales rising by 56.7pc July-March 2020-21, trucks 77pc, jeeps/SUVs/pickups 43.7pc — deferred purchases due to pandemic; and (iv) services sector rose by 18.69pc. In this context, it is critical to note that this sector is not only four times the value of the industrial sector but one-half consists of wholesale and retail trade (which rose massively in the current year subsequent to the lifting of lockdown during which purchases were delayed) and transport, storage and communications, all susceptible to fluctuations in the price of petroleum and products.
The foregoing suggests that the overheating of the economy is not only due to the growth in the services sector, mainly reflecting a rise in consumption patterns — private sector rose by 10.14pc and government by 3.40pc (against 1.82pc the year before) — but also due to the widening trade deficit to nearly 45 billion dollars that could not be plugged with the rise in remittance inflows to 24 billion dollars July-March 2022 against 21.4 billion dollars in the comparable period the year before.
This necessitated borrowing from abroad and from the domestic market with the heaviest reliance on Pakistan Investment Bonds (at a rate a couple of percentage points higher than the policy rate that has been steadily rising and is at present 13.75pc).
Current account deficit rose to negative 13.1 billion dollars July-March 2021-22 and is likely to rise to 16 billion dollars by end of the year with reserves plummeting to 9.7 billion dollars that Ismail stated will rise to 12 billion dollars as China releases 2.4 billion dollars loan.
Of further concern is the growth in tax revenue in the current year of 28.1pc but this rise represents a decline in the percentage of GDP to 6.1pc from 6.5pc in the comparable period of the year before.
However the Survey inexplicably shows that total expenditure rose by 27pc in the current year against the year before (July-March) however this was only 11.9pc of GDP, lower by 0.7pc from the year before while current expenditure budgeted at 19.2pc of GDP was brought down to 11pc this year against 10.9pc the year before — or a mere rise of 0.1pc subsequent to the relief package announced by the former Prime Minister, Imran Khan. Markup was budgeted at 3.8pc of GDP but was reduced to 3.2pc this year against 3.8pc last year.
This data does not quite support the boom-and-bust growth cycles mentioned in the Survey and emphasised by the Finance Minister in his press conference where he stated that the country was in a state of imminent default and after two months, the economy is embarked on the road to stability — a claim reminiscent of a former finance minister, Hafeez Sheikh, in 2020.
To conclude, the Survey does not reflect an economic treatise and not a political discourse as in the past and therefore must be welcomed.