Pakistan Economic Survey: Higher growth but missed targets

GDP grows by 4.24% in fiscal year 2014-15 against a target of 5%

* LSM sector registers growth of 2.38% against a target of 7% * Industrial sector grows by 3.62%

 Majority of the economic targets set for fiscal year 2014-15 were missed, including the Gross Domestic Product (GDP) which grew by 4.24% against a target of 5%, according to the Pakistan Economic Survey Report 2014-15 released on Thursday.

The growth target has been missed by a wide margin but is still better than previous year’s 4.03%, said Finance Minister Ishaq Dar while presenting the survey report. He said most of the economic targets were missed due to a sit-in by the Pakistan Tehreek-i-Insaf (PTI), energy crisis, and overall impact of decrease in petroleum prices.

The minister said that economic growth in 2015-16 will rise to 5.5% from 4.2% in 2014-15 and continue accelerating over the following two years. “Our GDP target for 2015-16 is 5.5%, for the next year 6%, and for 2017-18 our GDP target is 7%,” he said. He said that the government aimed to keep inflation in single digits over the next three years.

Dar said he hoped foreign exchange reserves will reach $20 billion in 2018. They have more than doubled since the beginning of 2014 and now stand at around $17.7 billion.

He said that the tax-to-GDP ratio, which currently stood at 11%, would increase to 13% over the next three years.

Growth in fiscal year 2014-15 was driven primarily by the services, industry and agriculture sectors, the minister said. While that is commendable, growth is still far below the 5-7% required to absorb new entrants in the labour force to check rising unemployment.

According to the economic survey, Pakistan’s tax revenue as a percentage of GDP has declined significantly in the past year, from 10.2% in 2013-14 to 7.5% in 2014-15.

According to the survey, the government spent 0.42% of GDP on health in fiscal year 2014-15. While actual expenditure has been rising year-over-year, the health-to-GDP figure has been more or less stagnant at under 0.5% for decades. Since government calculations of health as a percentage of GDP may vary from country to country depending on how health expenses are defined, using World Health Organisation (WHO) statistics seems a better way for cross-country comparisons of the metric.

The minister claimed that federal government has doubled the allocation for social sector and now the provinces have to increase their allocation for social sector.

The Large Scale Manufacturing (LSM) sector has registered growth of 2.38% as compared to the growth of 3.99% last year. The target was set at 7%.

Industrial sector recorded growth at 3.62% as compared to 4.45% last year. The target for the industrial sector was set at 6.8%.

During July-March of 2014-15, fiscal deficit as percent of GDP was contained at 5% against 5.5% in the same period of fiscal year 2013-14. The services sector has witnessed a growth rate of 4.95% as compared to 4.37 % last year, the survey report revealed.

“The agriculture growth stood at 2.9% during July-March 2014-15 as compared to 2.7% during the last year,” the finance minister added.

Pakistan’s current account deficit narrowed around 50% in the first 10 months of the current fiscal year as the country received higher remittances from its citizens living abroad, while low oil prices helped cushion the cost of imports. The current account deficit was curtailed to $ 1.364 billion in July-April 2014-15 from $ 2.931 billion in the same period last fiscal year. If this trend continues, the country can add more foreign currency reserves during the remaining months of the current fiscal year. So the government had projected the current account deficit of $ 2.8 billion for the entire fiscal year.

During July-March 2014-15, fiscal deficit was contained at 3.8% against 3.9% in the same period of fiscal year 2013-14.

Pakistan has received $1,452 million under CSF during first and second quarter of current fiscal year. These inflows have not only provided further comfort to fiscal accounts but also helped in maintaining the country’s reserve position.

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