Finance Minister Miftah Ismail on Thursday unveiled the Pakistan Economic Survey (PES) 2021-22, which showed a growth rate of 5.97 per cent against the target of 4.8 per cent.
However, the country’s growth saga – recovering from the pandemic (when the economy shrank) and maintaining a V-shaped recovery by recording real GDP growth of 5.97 per cent this year – is clearly facing macroeconomic imbalances. , suggesting that this growth is not sustainable.
The trade deficit jumped nearly 50 per cent especially in the country’s balance of payments situation and the current account deficit spiraled out of control compared to the previous year.
The Pakistan Economic Survey is an annual report on the performance of the economy, focusing exclusively on key macroeconomic indicators. Interestingly, this time – perhaps for the first time – a new government (the PML-N-led coalition) is projecting the economic performance of the previous government (PTI).
growth
Unveiling the survey, the Finance Minister said, “Achieving development was not an issue for Pakistan, the real issue is achieving sustainable development”.
“The GDP growth rate this year is 5.97 per cent, but as usual the current account deficit has once again shown that we have a balance of payments issue,” Ismail said.
This overall growth was driven by 4.40 per cent growth in agriculture, 7.19 per cent growth in industries and 6.19 per cent growth in services – meaning that all three major sectors exceeded their targets of 3.5 per cent, 6.5 per cent and 4.7 per cent respectively. have done.
Even though the country has exceeded the overall growth expectations as well as sector-wise development targets, according to the survey document, “the underlying macroeconomic imbalance and associated domestic and international risks have clouded the celebrations”.
trade deficit
The minister said that the imports amounted to $77 billion and this would be the highest import bill ever in terms of GDP. “Imports have increased significantly, but so have exports,” Ismail said.
According to the survey, during July-March FY2022, goods exports grew by 26.6pc to $23.7bn, while services exports grew by 17.1pc to $5.1bn.
“Despite encouraging export performance, the country’s imports have also increased significantly. Widespread rise in global commodity prices, COVID-19 vaccine imports and demand-side pressures contributed to the rising imports,” PES said.
As a result, the trade deficit widened by 55.5 percent to $32.9 billion, or 8.6 percent of GDP, which the document called a “historically high.”
current account
Despite both export receipts and labor remittances reaching record-high levels during the nine-month period, import payments registered a “large, broad-based growth”.
As a result, the current account deficit widened significantly over the previous year, the document showed.
“These payment pressures were manifested on the interbank PKR-USD exchange rate, which declined by 14.1 per cent during July-March FY 2022. SBP’s forex reserves also came under pressure from the second quarter, during the first nine months of the financial year. fell by $5.9 billion to $11.4 billion by the end of March 2022.
Therefore, during this period, the current account recorded a deficit of $13.8bn, or 3.6pc of GDP, against a deficit of $0.5 billion last year. The major contributor to the higher current account deficit was the 55.5 per cent increase in the trade trade deficit during the July-March fiscal year 2022, the survey document showed.
Increased inflationary pressures in the backdrop of geopolitical situation (particularly the Russia-Ukraine conflict) as well as the widening of the current account deficit pose significant challenges to sustainable economic growth.
“Furthermore, the recent emergence of domestic conditions (including political instability) is undermining business confidence. Thus, inflation and external sector pressures have created macroeconomic imbalances in the economy,” PES said.
inflation
The year-on-year (YoY) inflation from July to April of the outgoing financial year was measured at 11pc against the target of 8pc.
PES cited abnormal rise in global commodity prices, especially crude and edible oil, as the reason for the rise in domestic prices.
“The group-wise breakdown indicates that the major contributors to headline inflation are transportation, followed by furnishing and home appliance maintenance and housing, water, electricity and gas.”
It is further noted that non-perishable foods are the main contributing factor in driving up food inflation.
FBR Tax Collection
The survey said that the FBR initiated various policy and administrative measures to facilitate taxpayers to mobilize domestic resources and generate substantial revenue without impacting the pace of growth in the past year. As a result, FBR tax collection witnessed a substantial growth of 28.5pc during July-April FY2022.
The amount collected during this period stood at Rs 4,855.8 billion as compared to Rs 3,777.7 billion in the previous year.
However, the tax relief measures have impacted revenue collection by about Rs 73 billion during the month of April, PES said.
More to follow.