Daily Times

The severe macroeconomic imbalances, flood damages, domestic supply shocks, and international economic slowdown dampened the economic growth to just 0.29 percent in FY2023, said the Pakistan Economic Survey 2022-23 launched on Thursday.

According to the pre-budget document, following the budget announcement in June 2022, positive economic expectations and the performance of key indicators resulted in the government projecting GDP (gross domestic product) growth of approximately 5.0 percent in FY2023.

However, the economy lost momentum in the first quarter of the ongoing fiscal year due to the severe downturn in the global economy and flash floods of July-August 2022 and as a result it suffered from significant domestic supply disruptions.

“The flood damage is estimated at Rs 3.2 trillion (US$14.9 billion), the loss to GDP at Rs 3.3 trillion (US$15.2 billion), and recorded need for rehabilitation of damages at Rs 3.5 trillion (US$16.3 billion),” the Survey reported. On the international front, the prolonged Russia-Ukraine conflict adversely affected global growth and inflation remained unexpectedly high.

In FY2023, Pakistan’s GDP grew by 0.29 percent, with 1.55 percent growth in agriculture, negative growth of -2.94 percent in industrial sector, and 0.86 percent in services sector.

The GDP at current market prices recorded Rs 84,658 billion, showing a 27.10 percent growth over the previous year Rs 66,624 billion (US$ 341 billion). The per capita income decreased from US$ 1765 to US$ 1568 in FY2023. This deceleration was attributed to the significant depreciation of PKR and the contraction in economic activity.

For FY2023, the Investment-to-GDP ratio stood at 13.6 percent as compared to 15.6 percent in FY2022. The estimates of Gross Fixed Capital Formation (GFCF) stood at Rs 10,093.5 billion showing an increase of 8.1 percent compared to FY2022.

The industry-wise disaggregation of GFCF by the general government suggested an increase of 17.7 percent, 89.2 percent, and 5.9 percent in public administration & social security, education, and human health & social work, respectively.

According to the Survey, balancing macroeconomic factors for long-term, sustainable, and inclusive growth “requires attention to both supply and demand management and sectoral reforms in the economy”.

To keep supply-side strategies in focus, the government aims to expand production capacity, improving public and private investments domestically, attracting FDI, and participation in global value chains,” it said.

“This strategy also focuses on the investment friendly environment where potential investors feel confident making long-term decisions. Once production capacity increases, there will be a rise in the production of goods for export and import substitution, which can enhance trade performance.”

The Survey said the government also understood that the focus should remain on infrastructure investment rather than consumption, and engaging youth in entrepreneurship, which was indispensable to achieve sustainable growth raising the per capita income.

“As such, the economy will be able to enhance the domestic production that will replace imports and offer more supply to foreign markets. These improvements are vital to boost the country’s potential output and employment rates, and the government is very much committed to ensuring stability and confidence in the economy,” it added.

The efforts made by the incumbent government helped in containing the fiscal deficit to 3.6 percent of Gross Domestic Product (GDP) during the first three quarters of Fiscal Year 2022-23 against 3.9 percent of GDP recorded in the same period of last year. According to Pakistan Economic Survey 2022-23, launched here by Federal Minister for Finance and Revenue, Mohammad Ishaq Dar, the government was committed to reducing the fiscal deficit to ensure fiscal sustainability and macroeconomic stability. It says there were two major challenges including to support vulnerable segments of society; and the difficult task of meeting expenditures on rising interest payments. For this purpose, the budget of the outgoing fiscal year outlined a strategy for fiscal consolidation, it says adding it entailed reducing unnecessary spending and improving tax revenues. According to the survey, the primary balance posted a surplus of Rs 503.8 billion (0.6 percent of GDP) during July-March FY2023 against a deficit of Rs 447.2 billion (- 0.7 percent of GDP) last year owing to a slowdown in the growth of non-markup expenditures.

Total revenues increased by 18.1 percent in July-March FY2023 against the growth of 17.7 percent in the same period last year. Both tax and non-tax collection contributed to an increase in overall revenues. Tax revenues (federal and provincial) witnessed a growth of 16.5 percent on the back of a significant rise in FBR tax collection despite various economic challenges at the domestic and global levels. Non-tax revenues grew by 25.5 percent in July-March FY2023 on the back of higher receipts from petroleum levy, markup (PSEs and others), royalties on oil/gas, and passport fee.

The growth in total expenditures reduced to 18.7 percent in July-March FY2023 from a 27.0 percent increase observed in the same period of last year. Within total expenditures, current expenditures grew by 25.3 percent primarily driven by a 69.1 percent growth in markup payments as compared to a 0.7 percent increase in the same period of FY2022. In contrast, non-markup current expenditures grew by 7.7 percent during July-March FY2023 against the substantial increase of 32.1 percent in the comparable period last year. The restricted growth during July-March FY2023 has been observed mainly due to the decline in expenditures on subsidies and grants and is consistent with the government’s efforts to ensure fiscal consolidation. The fiscal consolidation efforts are on track and reaping the benefits in terms of better fiscal accounts during the first nine months of the current fiscal year. It is therefore expected that FY2023 would observe a considerable decline in fiscal deficit as compared to last year. In addition, the efforts to improve financial planning through PFM reforms will provide additional impetus to the government’s efforts to further reduce the fiscal deficit over the medium term, the report adds.

Highlights of Economic Survey 2022-23

* GDP growth (FY2023): 0.29% against 6.1% last year

* Agriculture sector growth: 1.55 % (4.27 % last year)

* Industry growth: -2.94 % (6.83% last year)

* Manufacturing: -3.91% (10.86 % last year)

* Construction Sector: -5.53% (1.90 % last year)

* Services Sector growth: 0.86% (6.19% last year).

* Wholesale & Retail Trade (WRT): -4.46% (10.3% last year)

* Transport and Storage: 4.73% (4.09% last year)

* Information & Communication: 6.93 % (16.32% last year)

* Nominal GDP increased to Rs. 84,658 bn (Rs. 66,624 bn last year)

* Per Capita Income: $1,568 ($1,765 last year), -11.2 % Growth

* Total Investment: 10.2 % growth (29.1% last year), 13.6 % of GDP

* Private Investment: 6.18 % growth (27.66% last year), 8.8% of GDP

* Public Investment: 14.10 % growth (39.27% last year), 3.1 % of GDP

* National Saving: 44.7 % growth (-3.8% last year), 12.6 % of GDP

* Agriculture sector growth: 1.55 % (4.27 % last year)

* Crops sector growth: -2.49 % (8.19 % last year)

* Important crops growth: -3.20 % (5.41% last year)

* Other crops growth: 0.23% (11.93% last year)

* Livestock sector growth: 3.78 % (2.25% last year)

* Forestry growth: 3.93% (4.07% last year)

* Fishing growth: 1.44% (0.35% last year)

* Manufacturing Growth: 3.91% (10.86% last year)

* LSM growth (Jul-Mar, FY2023): -8.11% (10.61% last year)

* Fiscal deficit (Jul-Apr FY2023): 4.6 % of GDP (4.9 % of GDP last year).

* Primary balance (Jul-Apr FY2023): a surplus of Rs. 99.1 bn

* Total revenue (Jul-Mar FY2023): increased by 18.1 % to Rs.6,938.2 bn

* Total Tax revenue (Jul-Mar FY2023): grew by 16.5 % to Rs. 5,617.7bn

* Non-tax revenue (Jul-Mar FY2023): grew by 25.5 % to Rs.1,320.5 bn

* Total expenditures (Jul-Mar FY2023): grew by 18.7 % to Rs 10,016.9 bn