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.
