Finance Minister Ishaq Dar unveiled the Pakistan Economic Survey 2015-16 on Thursday, revealing that the PML-N government has missed its growth target by a wide margin, mainly because of an overall dismal performance by the agriculture sector.
But this was compensated by the industrial sector as the construction and electricity sectors outperformed expectations.
The services sector grew at par with the set target, bolstered by an increase in salaries of government employees and defence servicing.
Below is a snapshot of the economic performance as presented by Dar:
Why? Even though the targets for industry and services sectors were achieved, the finance minister said a dismal performance in the agricultural sector resulted in an overall missed target for growth.
The agricultural sector witnessed negative growth at -0.19pc against a projection of 3.9pc.
Due to a 28pc decline in cotton crop, GDP growth suffered a decline of 0.5pc, Dar said. If this were not the case, “our GDP growth would have been 5.21pc”, he said.
The industries sector, however, surpassed its estimated growth target of 6.4pc and the services sector achieved its targeted growth ─ although this growth is largely supported by an increase in the salary of government employees.
Know more: Pakistan misses economic growth target
Although the PML-N government has set an ambitious target of 7pc GDP growth by tenure end, the economy has consistently missed the growth target.
While the agriculture sector suffered, the government focused more on the industrial and services sectors which are the PML-N's linchpin.
Also read: Investment shows growth of 5.78pc
The economy also suffered losses due to terrorism. A collective loss of nearly Rs3.2 bn was borne by exports ($800m), tax revenue ($2.3bn), infrastructure ($70m) and industrial output ($10m).
Presenting the PES, however, Dar emphasised the government's need to focus on agricultural growth potential. “We can't neglect any sector... Our focus will be a growth-oriented budget for the next year. The agricultural sector, which has growth potential, will be addressed in our next budget.”
“We have to make a collective effort to consolidate our gains and maintain our financial discipline.”
Why? Inflation was under control primarily because the government pursued a tighter monetary policy — a higher interest rate — which translated into lower spending/demand and higher savings.
Headline Consumer Price Index inflation has sustained a rising trend since a 1.3pc low last September on the back of rising food, water, power, gas and electricity prices.
“Prices all over the world have been low,” the minister said. “This is a welcome sign.”
But core inflation ─ which typically excludes goods with volatile pricing ─ has remained subdued due to weakening demand pressures that are a direct result of an aggressive monetary policy in the form of higher interest rates. Low oil prices internationally have supplemented this trend.
Why? The government was able to contain the fiscal deficit due to a slower pace of development spending than last year.
Of the Rs700bn allocated to the Public Sector Development Programme (PSDP), only about 61pc or Rs429bn was disbursed for development projects compared to Rs349bn or 67pc of the total Rs535bn allocated to the PSDP last year.
Note: Last year the government was forced to seek a relaxation of 0.3pc of GDP in the budget deficit target set with the IMF, equal to Rs100 billion, to meet extraordinary, unbudgeted and "one-off" expenditures arising from Operation Zarb-i-Azb.
Tax-to-GDP ratio for the fiscal year came in at 8.4pc, which the government plans to push up to 12.5pc next year.
The problem is exacerbated because only 0.45pc of the total population filed a tax return, which corresponds to just 15pc of the potential tax base.
More on this: Tax exemptions still Rs395bn
But tax revenue has been on the up over the past few years, Dar claimed, as the government looks to widen the tax base through removal of non-essential SROs and new measures. Tax revenue last year was Rs2,063bn compared to this year's revenue of Rs2,344bn – a 13pc rise.
For an economy like Pakistan, which has been struggling in its attempt to surge growth, more indirect taxes are counter-productive because they end up hurting demand ─ which in turn weighs down on growth.
BALANCE OF PAYMENTS
The Balance of Payments situation shows a positive picture with the current account deficit coming in at 0.6pc of the GDP compared to 0.8pc last year.
“Our current account deficit is contained because of low oil prices and remittances,” Dar said, which have resulted in higher savings.
But despite that, the trade balance has worsened with exports declining across all sectors and imports – other than food and energy – have increased.
Exports fell to $18.18bn, down 9.6pc from last year, while imports fell $32.42bn ─ a drop of 4.6pc compared to last year's figure.
Therefore, the country is still facing a current account deficit of $1.6bn despite record-high remittances and savings through cheaper oil imports.
The soaring remittances, which came in at $16.03bn, also translated into unprecedented forex reserves of over $20bn.
Design by Fahad Naveed.
During the FY15-16 budget announcement, Dar vowed that the government would “move towards promoting inclusive growth for job creation” and poverty alleviation.
A new measure of poverty this year revealed that 60m Pakistanis or 6.8m to 7.6m families live below the poverty line. The poverty headcount ratio at 63.3pc in 2001-02, has now fallen to 29.5pc, but one third of the population still lives without basic necessities and amenities.
Read more: Rediscovering the poor
The government allocated Rs1,513bn to the National Development Programme, of which Rs700bn was allocated to the federal Public Sector Development Programme (PSDP).
However, the government only disbursed about 61pc or Rs429bn of the PSDP for development projects as compared to Rs349bn or 67pc of the total Rs535bn allocated to the PSDP last year.
The power sector utilised the highest amount of funds set aside for PSDP projects.
FY15-16 budgetary allocations for federal PSDP:
Rs252.6bn to federal ministries and divisions
Rs271.0bn to corporations
Rs20bn for Millennium Development Goals and the Community Development Programme
Rs28.5bn for the Special Federal Development Programme
Rs7bn to the Earthquake Reconstruction and Rehabilitation Authority
Rs100bn for the Special Development Programme for TDPs and security enhancement
Rs20bn for the PM's Youth Programme
EDUCATION AND EMPLOYMENT
Unemployment witnessed a marginal decrease in FY15-16 from 6pc in 2014 to 5.9pc in 2015.
Last year, the government spent 1.67pc of the GDP on education, with the federal government contributing 0.34pc of the GDP and the provinces contributing 1.33pc of the GDP.
The federal government and provincial share of total education expenditure is 20:80.
Although the number of out-of-school children decreased by 1m over the past year to 24m and retention rates improved, over 18m have never seen the inside of a classroom.
Gender disparity is also evident in school enrolment rates, with over half of all girls out of school compared to 43pc of boys.
There are only 13 countries in the world with a lower adult literacy rate than Pakistan.
The government set aside Rs71.5bn for development projects in universities.
Know more: Education emergency
SOCIAL WELFARE AND HEALTH
The PM's $9bn National Health Programme scheme has been initiated in 17 districts, with arrangements being made for launches in five more districts. A total of 23 districts were to be targeted this year. So far, about 1.36m lesser-privileged families are to be provided with free healthcare under the scheme.
The government allocated an additional Rs2bn to the national kitty for welfare activities, including hospitalisation costs for the poor.
A total of Rs102bn was allocated to the Benazir Income Support Programme, which will benefit 5.3m families.
The PM's Interest-free Loan scheme will provide loans of Rs50,000 to households with a score of 40 or less on the poverty score card.
Design by Fahad Naveed.
“The last 10-month figures saw foreign direct investment majorly in the power, gas and finance sectors,” Finance Minister Ishaq Dar said. "We have no plans to go for another International Monetary Fund programme."
CHINA-PAKISTAN ECONOMIC CORRIDOR
The most notable infrastructural development project undertaken by the government last year was the massive $46bn China-Pakistan Economic Corridor (CPEC).
“About Chinese investment ─ it will come for CPEC projects and it will come in foreign currency,” the finance minister said.
$34bn in 24 17,000 megawatt energy projects
$4bn in highways and motorways projects
$3.65bn railway link from Peshawar to Karachi
$1bn for the development of Gwadar city
$40m for the development of the Havelian dry port and establishment of special economic and industrial zones in all provinces
$44m for an 800 kilometre fibre optic network stretching from Khunjerab to Rawalpindi-Islamabad
A number of motorway, road and power projects fall under the CPEC.
“Electricity generation this year is 12.18pc on a new baseline compared to last year's 11.98pc,” Ishaq Dar said.
The government intends to end loadshedding by 2018, saying it will supply cheap electricity and improve the power transmission and distribution systems, cut line losses and reduce circular debt.
One of the main projects, the 4,500 megawatt Diamer-Bhasha dam was to be completed by 2016. Rs21bn was set aside for land acquisition for the project in the FY15-16 budget, but this target was not achieved by the government.
Other major power projects that were allocated funds this year were the Dasu Hydropower project (HPP), Neelum-Jhelum HPP, and the Tarbela-IV extension HPP.
Ground was broken on the Tapi gas pipeline in Turkmenistan and the CASA-1000 power transmission line stretching from Tajikistan to Pakistan.
Design by Fahad Naveed.
Why? Cotton output led the freefall in the agriculture sector, considered the backbone of the national economy, as it posted a negative growth of 27pc. Last year, agriculture had grown 2.88pc.
The government in FY15-16 announced its intent to give positive price signals to farmers, "protect them from vagaries of market fluctuations and support them in the face of natural calamities". This does not appear to have been the case.
Design by Fahad Naveed.
“Industrial growth was 6.8pc this year against last year's revised number of 4.81pc,” Dar said.
The government had targeted a growth of 6.4pc. Growth in this sector was heavily bolstered by the construction and electricity sectors. Last year, industry had grown by 3.6pc.
“Large-scale manufacturing was 4.61pc this year as compared to 3.29pc last year. The major improvements were witnessed in the automobile sector which saw growth of 23.4pc, fertiliser with 15.9pc, leather products 12pc, rubber products 11.7pc, non-metallic mineral products 10.2pc, cement 10.4pc, chemicals 10pc and pharma with 7.21pc. Overall industrial growth was 6.8pc,” the minister said.
The construction sector registered 13.1pc growth compared to 6.24pc last year ─ “a good sign of industrial activity”, Dar said.
More details here: Manufacturing helps lift industrial sector growth
Design by Fahad Naveed.
The services sector grew 5.7pc in FY15-16, compared to 4.31pc last year. The sector met its target primarily on the back of an increase in the salary of government employees.
This is evident from an 11.13pc growth in general government services against the target of 6pc.
“The improvement is basically in transport and communication. The banking sector has done quite well, consumption and government services have increased,” Dar said.
Know more: Credit to private sector grows 8.3pc