Economic Survey paints a dismal picture

Economic Survey paints a dismal picture
The News, June 11, 2008
Govt says all indicators missed targets
By Mehtab Haider

ISLAMABAD: The Economic Survey 2007-08, released on Tuesday, paints a dismal picture about the state of the national economy where Pakistan has missed all its envisaged macroeconomic targets during the outgoing fiscal year owing to domestic and external shocks.

Conceding that the country's economy is in serious difficult situation, the survey states, the country's GDP growth fell to 5.8 per cent against target of 7.2 per cent, fiscal deficit surged in the range 7 per cent owing to higher POL and food prices against target of 4 per cent, growing vulnerabilities in the wake of hike in current account deficit touching to 6.9 per cent of the GDP as well as ballooning inflationary pressures to 10.3 per cent against target of 6.5 per cent, posing serious challenges for the economic managers.

The public debt is rising on account of twin deficits — fiscal and current account — and likely to rise up to 56 per cent of the GDP for 2007-08 against 53 per cent for the previous year and witnessing reversal in the trend by moving from bad to worst.

"Fiscal year 2007-08 witnessed violation of various aspects of the Fiscal Responsibility and Debt Limitation Act 2005," the Economic Survey 2007-08 admits. The food inflation is estimated at 15 per cent for the outgoing fiscal year, clearly indicating that the higher prices of food fleecing the poor voiceless consumers.

The Economic Survey 2007-08 was launched by Finance Minister Syed Naveed Qamar here at P Block during a press conference on Tuesday. Flanked by Special Adviser to the Prime Minister on Finance Hina Rabbani Khar, author of the Economic Survey Dr Ashfaq Hassan Khan and others, the finance minister announced that the PPP government would launch another poverty survey along with upcoming census to get more reliable data and analysis on this issue.

The external debt rose to $45.9 billion in first nine months of the current fiscal against $40 billion last year, registering an increase by $5.4 billion. The foreign exchange reserves dwindled to $12.3 billion by the end of April 2008, significantly lower than June 2007 level of $15.6 billion.

The rupee also depreciated against the US dollar by 6.4 per cent during the first 10 months of the fiscal 2007-08 compared to the previous financial year. Dwelling upon the reasons for higher fiscal deficit, the Economic Survey 2007-08 states the oil subsidy is projected to rise to Rs 175 billion — surpassing the target level by Rs 160 billion. Similarly, the subsidy on electricity tariff stands at Rs 113 billion against the budgetary allocation of Rs 52.9 billion.

On positive side of the economy, the per capita income rose to $1,085 and it was claimed that the poverty level has come down from 23.9 per cent in 2004-05 to 22.3 per cent by 2005-06. Through the Economic Survey, the PPP government has endorsed the Shaukat Aziz regimeís claim of reducing the poverty whereas the growth remained at an average rate of 7 per cent during the last five years.

But the Economic Survey also admitted that the inequality has been rising since 2001 where gap between the rich and the poor is widening. The country's exports recorded a growth by 10.2 per cent and increased to $15.3 billion while imports went up to $32.1 billion in July-April period, registering a trade deficit to the tune of $17 billion.

Against the backdrop of extreme political instability and heightened security concern, Pakistan succeeded in attracting $3.5 billion foreign direct investment (FDI) in the first 10 months of the current fiscal year - almost $700 million less than last year.

Total investment declined to 21.6 per cent of the GDP in the fiscal year 2007-08 against 22.9 per cent for 2006-07 thus the contribution of the investment to the current year's GDP growth declined from 45 per cent to almost 12 per cent for the outgoing year. Fixed investment also declined to 20 per cent of GDP from 21.3 per cent. The public sector investment remained at last year level of 5.7 per cent, private sector investment declined to 14.2 per cent for 2007-08.

The Economic Survey 2007-08 states the current fiscal year has been a difficult year for Pakistan's economy.

"Several political and economic events, both on domestic and external front, occurred unexpectedly. These events include: disturbed political conditions; an unstable law and order situation; supply shocks; soaring oil, food and other commodity prices; softening of external demand; and turmoil in the international financial market."

The most important aspect, however, has been the non-responsive stance on account of political expediency in addressing domestic and external challenges during most part of the fiscal year, further accentuating macroeconomic difficulties" the Economic Survey 2007-08 added.

"We will also reconstitute the NFC body and its maiden session is expected to meet in July 2008," the finance minister said and added that two provinces have so far nominated its members while the centre is waiting nomination from the remaining two federating units.

He said the GDP growth of 5.8 per cent was mainly led by services and consumption as the performance of agriculture and manufacturing sector was unable to achieve its envisaged targets.

The agriculture sector grew by 1.5 per cent in the outgoing fiscal against target of 4.8 per cent for 2007-08. Major crops witnessed negative growth of 3 per cent and livestock rescued the agriculture growth by achieving 3.8 per cent in 2007-08.

Real private consumption expenditure grew by 8.5 per cent in 2007-08 against 4.8 per cent last year. The contribution of net exports is negative 21 per cent. It is therefore safe to suggest that this year's growth is service/consumption led growth.

National Savings at 13.9 per cent of the GDP has financed 65 percent fixed investment in 2007-08 against 77.7 per cent last year. National Savings as percentage of GDP stood at 13.9 percent in 2007-08 — far lower than last year's level of 17.8 per cent. The decline in National Savings rate simply indicates that the reliance on foreign savings increase to finance domestic debt.

The overall fiscal deficit is estimated at Rs 737.8 billion or 7 per cent of the GDP for 2007-08 against the target of Rs 399 billion or 4 per cent of the GDP. Some shortfall in revenues and massive slippages in expenditure side on account of interest payments and subsidies are responsible for the rise in fiscal deficit. An adjustment of Rs 100 billion was made in development expenditures in the outgoing fiscal year.