There has been some criticism lately, mentioning weakening of macroeconomic stability in the context of current and fiscal accounts' deficit in 2017. In this regard, it is necessary to remind that the present government inherited a fragile economy characterized by low investments, high inflation, low GDP growth, high fiscal deficit, low Tax to GDP, low level of foreign exchange reserves and a looming external debt default with rising power sector circular debt and severe energy crisis.
The government soon after assuming responsibilities, launched a home grown program of economic reforms and in the period of four years achieved a remarkable economic turnaround which is recognized by international community. GDP growth of 5.3% last fiscal is the highest in the last ten years. Tax-to-GDP ratio has increased from 10.1% in 2013 to 12.5% in 2017. Fiscal deficit has been reduced from 8.2% in 2013 to 4.6% in 2016. Fiscal deficit in FY17 increased to 5.8%. Fiscal deficit 2016-17 increased by 1.6% of GDP (from 4.2% to 5.8%). Major contributors were provincial deficit 0.9%, higher project aid 0.4% and lesser FBR revenue collection 0.5% of GDP. FBR tax collection registered a cumulative growth of 77% between FY2013-2017. Size of Development spending has increased by 300% in four years. Inflation has been brought down in the range of 4 - 5% in FY2017 from the average of 12 percent between 2008-2013. Policy rate is at a historic low of 5.7% down from 9.5% in FY2013.
Pakistan’s foreign exchange reserves which were US$11.02 billion while SBP reserves were US$6 billion in June 2013, presently reserves are at a healthy level of about US$19.8 billion with SBP reserves at US$13.6 billion. Current account deficit was recorded at US$12.4 billion during FY17 as compared to US$4.9 billion in FY16. It was mainly due to increase in imports of machinery, industrial raw material and petroleum products. These imports are enhancing productive capacity of the economy for higher output and exports in future.
As for stagnancy in exports, it was largely due to global economic conditions, low commodity prices and severe bottlenecks in the energy and infrastructure sectors of the economy as well as adverse security conditions in the country. Workers' remittances which remained stagnant last year due to adverse economic conditions in the Middle East, stringent USA regulations and impact of Brexit, have returned to growth zone. The security situation has significantly improved, uninterrupted energy is now being provided to the industrial sector and global economic outlook is positive. The Government in January 2017 announced an export package of Rs.180 billion which has started showing results. The government has also taken necessary policy measures to reduce import of non-essential products. Additionally, necessary measures for achieving increase in workers' remittances is also in progress.
GDP growth target for 2017-18 and beyond is above 6% per annum. Economic data for Q1 FY2018 (July-September) shows strong performance of the economy and reversal of some of the negative trends of past in external and fiscal situation. Exports, which registered a negative growth of 1.3% in first half of 2016-17 have returned to growth zone. Exports during July-September FY2018 posted a healthy growth of 12.4% as compared to the same period last year. Imports during first quarter increased by 25 %, however, month-on-month basis growth in imports have begun to decelerate. Imports increased by 51.6% in the month of July which decelerated to 9% in August and 22% in September. Workers' remittances have returned to growth zone showing an increase of 2.3% during July-October 2017. Current account deficit for the period July-October 2017 shows an improvement of 4% as compared to March-June period of last year. Evidently, The recent pressure on external account is transitory and is likely to peak out this year as various energy and infrastructure projects are completed by June 2018.
FDI inflow during July-October FY 2018 was $ 940 million compared to $ 539 million during the same period last year, registering a massive growth of 74.4%. Tax revenue collection in Q1, 2017-18 increased by 20%. Fiscal deficit during Q1 stood at manageable level and was lower than the same period last year, signaling that fiscal consolidation is on track this year. LSM growth during Q1, 2018 increased by 8.4% as against 1.8 percent last year. Increased manufacturing output is backed by low interest rate environment and low inflation. Cotton output this year is projected at 12.6 billion bales which is 17.8% higher than last year. increased cotton output will have positive impact on other sectors of the economy as well. Rice output this year is projected at 7.28 million tons which is 6.3% higher than last year. Sugarcane output is projected at 79.31 million tons which is 7.8% higher than last year. Clearly, the economic indicators for Q1 FY2018 are reflecting strong performance of the economy and reversal of some of the negative trends which were witnessed in FY2017. More significantly, GDP growth target of 6% this year seems on track and may even be surpassed. Therefore despite challenges, S&P in its rating report on 25th October, reaffirmed Pakistan 'B' short-term and long-term ratings with Stable Outlook and acknowledged that Pakistan's external account challenges are short-term and will recede within two years' time. According to Organization of International Chamber of Commerce and Industry (OICCI) survey released this week, Business Confidence in Pakistan has improved to 21% in November 2017 as compared to 13% in May 2017 owing to improvement in overall economy, increased consumer demand, better business alliances, decline in energy shortfall, decrease in fuel prices and low inflationary pressure on various other products.