Daily Times

ISLAMABAD: Since June 2013, economic growth is said to have been gradually recovered; inflation has been brought to single digit, foreign reserves buffers have been rebuilt, fiscal deficit has significantly declined and social safety nets have strengthened the blackouts in the energy sector – more predictable in urban areas at least.

Notwithstanding, the reality is as follows: The Pakistan Bureau of Statistics is exaggerating the GDP growth for the last three years. First it revised the GDP growth in 2011-2012 from 4.4% to 3.8% to achieve growth rate of 4% in 2013-14. The growth rate has been overstated in 10 out of the 18 sectors of the national economy to achieve 4.7% GDP growth in 2015-16.

Some of the examples in support of the above-mentioned statements are: The data of over last four decades shows that in a year when the agriculture sector declines the GDP growth rate never exceed 4%.

The official statistics show growth in wood products as negative 58% but value addition of forestry is shown as 8.8%. Large-scale manufacturing has been shown as 4.7%. It has contracted 3.21% by the end of June 2016. Value addition of electricity and gas sector includes the budgeted subsidy provided by the government. The budgeted subsidy for electricity was reduced by 46.6% in 2015-16 as compare to 2014-15 (from Rs 221 billion to Rs 118 billion). However, the PBS showed a growth of 12.2% in value addition by the sector. Oil production with 20% weight is down by 8.2%, gas production with 61% weight grew only 1.5% and coal production with 5% weight declined by 55.6%. However, growth in value addition by mining and quarrying has been shown as 6.8%. While investment in housing sector grew by 4% in 2015-16, the PBS has shown 13.1% growth in value addition by construction. The consolidate government expenditure excluding debt servicing grew by 5.7% but the growth of general government services has been shown as 11.1%.

While private investment despite extraordinary low interest rate has fallen from 10.2% of the GDP in 2014-15 to 9.8 % in 2015-16. Growth at constant prices declined to 3.3% as compared to 10.1% in 2014-15. Growth in private investment in agriculture centre declined to 0.2% as compared to 6.4% in 2014-15. The negative growth in agriculture is also reflected in the sale of tractors, which has declined by 39% and 37% decline in imports of agriculture machinery. Growth in private investment in large-scale manufacturing has also declined from 11.2 to 2.2% during the same period.

While the combined contribution to FDI from the US, UK and UAE has declined, FDI from Saudi Arabia and Germany is negative since 2014-15. Total foreign investment declined to $1281.1 million in 2015-16 as compared to $922.9 million in 2014-15.

On the other hand, net foreign exchange reserves of the country have increased from $6,008 million to $18,129 (from June 30, 2013 to July 1, 2016). During the same period, the cumulative net external borrowing including IMF was $14,902 million.

Therefore, reserves have increased entirely due to external borrowing. In fact $2,781 million have been used to finance the consumption of imported goods and services. The government seems to be comfortable with the current level of foreign exchange reserves. However, keeping in view the external financing needs for the next couple of years the external resources position is potentially vulnerable. The budget estimates for repayment of foreign loans and interest payment are about $6.6 billion in 2015-16. Additionally, reverse migration is likely to impact Pakistan remittances particularly from the GCC countries and Saudi Arabia, which could increase the need for external financing further.

While the government is vociferously claiming that due to low international prices of major export items, the exports of Pakistani goods have dropped by 10%. However, the detailed analysis of the government data reveals that quantity effect is predominant rather than price effect in FY2016. Major decline in export quality is observed in sugar 47%, cotton yarn 32% and leather 9%. Exports of SMEs have shown a significant decline – carpet 24%, leather gloves 31% and fans 21%. This indicates that there has been a significant loss of employment in SMEs.

Significant decline in export prices was observed – basmati rice 19%, other rice 15%, cotton cloth 14%, knitwear 12%, bed wear 5% and cement 4%. Balance of international trade during the last year clearly indicates the dismal outlook despite fall of international oil prices.

On the other hand, according to the State Bank of Pakistan, the country’s debt to the GDP ratio was 63. 2% at the end of 2014-15, which has increased to 66% at the end of March 2015-16. Almost three percentage point increase in the debt to GDP ratio is an alarming development. The trend of debt servicing as percentage of net federal revenue receipts during the last few years reveals that the public debt is mounting to unsustainable level. This ratio increased from 53% in 2007-8 to 62% in 2014-15 and then to73% in the first nine months of 2015-16 which indicates that only 27% of the net federal revenue is left of all other expenditures.

As agriculture is important for Pakistan not only because it accounts directly for 21% of the GDP but also 60% of the manufacturing is agro-based and over 40% of trading and transport is of agriculture products. Poverty alleviation through development of agriculture is an easier and quicker route. For this simple but dedicated carefully prioritised and a time bound strategy is required.

Based on the present power generation capacity, the hydel-thermal mix in the country is 29. 4% and 67.3%, respectively, which is almost the reverse of an ideal hydel-thermal mix.

Though induction of thermal generation over the past decade initially helped overcome the power outages, it resulted in substantial increase in power tariffs. Average industrial tariff in the neighbouring India costs Rs 7. 60, whereas in Pakistan it stands at Rs 12.

No visible growth is witnessed in the industrial sector, which contribute 21.02% to the country GDP during the last so many years. The country worries come from the decrease in foreign investments both direct and portfolio related. The major reason behind the dilemma is the fact that the country is running short of energy to drive the economic wheel.

Some of the suggestions which government may consider to improving agriculture sector include: Easy access of credit to the growers at low mark-up rates, especially for the small farmers.

Provision of new seeds at subsidised rates to replace infected seed, especially for cotton. Availability of subsidised fertilisers and duty-free import of agricultural equipment.

Electricity to tube wells at flat rates. Loan for BMR expansion at concessional rates and tax-free incentives for capacity expansions might also be included in the suggestion list.