PR No. 169 Economy Put on High Growth Trajectory: Spokesman Finance Division Islamabad: 23th September 2017

Spokesman of the Finance Division has categorically rejected a report carried by a section of media, "Dar’s Legacy: a heavily-indebted Pakistan".

The spokesman offering his comment on the report said that in the past four years of the present government has seen tremendous economic growth whereby the size of the economy grew from USD 225 billion in 2013 to USD 304 billion in 2017 thus constituting an aggregate growth of 35 percent during the said period. This was only made possible by the prudent policies of the government that included historically low domestic interest rates, a prolonged and sustained period of low inflation and price stability, significant surge in private sector credit, huge increase in PSDP spending and above all an effective monetary policy coupled with a judicious fiscal policy that saw the budget deficit come down from 8.2 % in 2013 to 5.8% in 2017. Despite all these positive development some detractors have made it a habit to cherry pick the selective numbers and present them in isolation without giving the reader a proper perspective and a complete picture of the economy.  

The report said that the Pakistan’s total debt and liabilities increased to Rs. 25.1 trillion. It further stated that total external debt and liabilities has increased to roughly $83 billion by end of fiscal year 2016-17 and a sum of $8.2 billion was spent on external debt servicing. The report unduly criticized the changes made in Fiscal Responsibility and Debt Limitation Act, 2005. The report has portrayed a negative picture of the economy by analyzing the debt in isolation and completely ignoring positive developments witnessed during the past few years.

 The spokesman said that firstly, the writer has used exaggerated numbers which create doubts and mislead the general public. Some of these are highlighted as follows:

I.              Total debt of the government stood at Rs.19.6 trillion at end June 2017 as opposed to Rs.25.1 trillion as mentioned in the news report. Further, the debt burden is better understood in comparison to its relation with the GDP instead of absolute debt numbers. Another way to gauge the increase in public debt burden of the country is to compare that with relevant global debt statistics. In this regard, Pakistan witnessed a marginal increase of 1.4 percent (from 60.2 percent in 2013 to 61.6 percent in 2017) in its total debt to GDP ratio during last four years while during the same period global debt to GDP ratio increased by about 8 percent (Source IMF World Economic Outlook).

II.            Similarly, external public debt stood at US$ 62.5 billion while news report reported total external debt and liabilities number amounting US$ 82.7 billion at end June 2017 to sensationalize the issue. The rationale of using external public debt instead of external debt and liabilities has been clarified at many forums. Total External Debt and Liabilities include the debt of other sectors (private sector, bank borrowing)which are not part of public debt since the government is not liable to pay these obligations. External public debt increased from US$ 48.1 billion to US$ 62.5 billion i.e. by US$ 14.4 billion while non-public debt rose by US$ 7.3 billion.

  III.        Therefore, It is incorrect to assume that debt per capita is Rs.120,381.


The spokesman said the news report made a false claim that the government has made amendments in the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005 to conceal the worsening debt picture. In fact, most of the clauses of FRDL Act were outdated and the present government not only updated the clauses in accordance with the present economic realities but also defined path with an objective to improve the fiscal and debt situation of the country along with formalizing the definition of public debt. It is important to note that these amendments were made regardless of the tenure of any political government to clearly define a debt reduction path. Accordingly, the gross public debt numbers are consistent and unchanged as reported in the government publications in the past. Further, the total debt numbers are consistent with international reporting standards i.e. “IMF Public Sector Debt Statistics Guide for Compilers and Users (2013)”. Such narration only intends to mislead the public regarding public debt data integrity based on lack of understanding of the public debt management, disregarding the Fiscal Responsibility and Debt Limitation Act approved by the parliament.

The news report incorrectly stated that the government is in violation of the original limit of 60 percent of Debt to GDP set under the Fiscal Responsibility and Debt Limitation Act passed by parliament in 2005. It is to clarify that the limit of 60 percent of Debt to GDP will be applicable by end June 2018 as per the Fiscal Responsibility and Debt Limitation Act. Therefore government is not presently in violation of this threshold of FRDLA. Furthermore the government, with an aim to improve debt sustainability, has introduced a 15 year debt reduction path  whereby starting from 2018/19 the public debt to GDP ratio shall be brought down from 60% to 50% by end 2032/33.    

Tthe news report clearly ignores that Pakistan’s economic indicators are performing well which has been acknowledged internationally and led to an improvement in country’s credit rating.

Some of the key economic highlights are as follows.

GDP Growth: The pace of expansion in the economy accelerated for the fourth consecutive year in FY2017 amid improving security situation and energy supply. The real GDP growth in FY2017 reached a decade high of 5.3 percent. This broad based growth was on account of remarkable performance of agriculture, industry and services along with pro-growth supportive policies of the government.


LSM Growth: Long Term Finance Facility (LTFF) has been reduced from 11.4 percent to 6.0 percent which is encouraging the economic activities in LSM sector. The LSM recorded a growth of 5.6 percent in FY2017. This growth momentum continues in FY2018 as it recorded a phenomenal growth of 12.98 percent in July, FY2018 compared to 1.72 percent in the corresponding period last year.

Private Sector Credit: The flows of credit to private sector has seen historic expansion of Rs.747.9 billion in FY 2017 compared to a decline of Rs.7.6 billion in FY 2013. The robust lending is a reflection of favorable supply as well as demand conditions in the economy. On the supply side, the most helpful factor was a healthy deposit growth, which significantly improved the liquidity of the banking system and on demand side, low financing cost encouraged private businesses alongwith an added impetus from CPEC related activities and higher PSDP expenditures which triggered the demand for fixed investment loan by private businesses.

Improved Business Sentiment: The overall improvement in business sentiment along with supportive policies (historic low interest rate, high infrastructure spending and better law and order) has encouraged a number of firms to pursue expansion plans. Likewise, lowest policy rate has also provided a significant support to industrial sector. 

Inflation: FY2017 marked the third consecutive year when the headline CPI inflation remained lower than the annual target. The general trend was nonetheless increasing: after reaching the multi-decade low level of 2.9 percent during FY2016. During July-August FY2018, CPI inflation increased by 3.16 percent compared to 3.84 percent in the comparable period of last year. The current trend of inflation suggests that it will remain well below the target of 6.0 percent during FY2018.



Fiscal Consolidation: Fiscal sector of the economy has witnessed a notable improvement on account of contained expenditures and increased revenues. Consolidation efforts are on track since government has successfully curtailed the fiscal deficit at 5.8 percent of GDP in FY 2017 from 8.2 percent of GDP in FY 2013.

Tax Collection: The overall tax-GDP ratio has reached to 12.5 percent in FY 2017 as compared to 9.8 percent in FY2013. FBR Tax collection increased from Rs.1,946 billion in FY2013 to Rs.3,361.0 billion in FY 2017, registering an overall growth of around 73 percent. During July-August FY2018, FBR tax collection posted an impressive growth of 21.5 percent at Rs.443.886 billion compared to Rs.365.401 billion during the same period of last year.

Balance of Payments: The current account deficit reached to $ 2.6 billion (0.76 percent of GDP) in July-August FY 2018, from $ 1.3 billion (0.42 percent of GDP) in last year. On MoM basis, the external account position is showing an improvement and CA improved by 73 percent during August 2017 over July 2017 on account of better exports, remittances and FDI growth.

Exports: Exports started showing positive results during FY2018 due to several initiatives for the promotion and facilitation of exports, such as mark-up rates has been reduced on Export Re-finance Facility (ERF) from 8.4 percent to 3.0 percent. Prime Minister’s package of Rs.180 billion is also aiding the export sector. During Jul-Aug FY2018, exports posted a significant growth of 17.9 percent and on MoM basis 14.3 percent in August 2017.


Remittances: During July-August FY2018, overseas Pakistani workers remitted US $ 3.496 billion as compared with US $ 3.089 billion received during the same period in the preceding year, which is higher by 13.18 percent.


FDI: FDI amounted to $2.411 billion during FY2017 compared to $2.305 billion during same period last year, posting a growth of 4.6 percent. During July-August, FY2018, FDI posted a significant growth of 154.9 percent which bodes well for the Balance of Payment.