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Govt announces 5.28pc GDP growth; Dar optimistic despite missed target

GDP growth highest in 10 years, size of economy crosses $300bn mark for the first time.
Updated 26 May, 2017 12:20am

Finance Minister Ishaq Dar on Thursday announced that Pakistan's Gross Domestic Product (GDP) had grown 5.28pc in fiscal year 2016-17 (FY17), against the target of 5.7pc.

"There has been visible growth in the national economy," the finance minister said at his annual press conference for the Pakistan Economic Survey.

Dar said Pakistan's 'growth story' was being celebrated all over the world, and called for a collaborative effort across party lines to help Pakistan maintain its economic momentum.

"This is the first time in 10 years that we have crossed the 5pc GDP growth mark," Dar said.

"For the first time, Pakistan's economy has crossed the $300 billion mark," he added.

"We are now targeting 6pc growth for next year," he said.

Growth

According to the finance minister, the Industrials sector grew 5.02pc, Agriculture 3.46pc and Services 5.98pc.

"Agriculture sector rebounded to 3.46pc growth as compared to the muted growth last year and services sector performed better than expected," the government's accompanying report said.

"The better performance of agriculture is due to various measures of government under Kissan package to enhance agriculture produce like support price for production, significant increase in credit to agriculture sector, better arrangements for the provision of inputs like seed, fertilizers, insecticides and better arrangements for marketing.

"Moreover favorable weather conditions during the FY 2017 also helped to achieve better yield," the report said.

"Services sector also surpassed the planned target and has emerged as the most significant driver of economic growth and is contributing a major role in augmenting and sustaining economic growth in the country," the report noted, attributing growth in the sector to a wide-ranging expansion in its sub-sectors.

Investment

"Total investment has reached Rs5.03 trillion as compared to Rs4.53tr last year, showing growth of 11.05pc in FY 2017," the government's report said.

"Investment to GDP ratio has reached 15.78pc in FY2017," it added.

"A number of massive infrastructure, power and other projects have been initiated which remained instrumental in attracting private sector investment. Over the medium term the target is to increase investment to 20 percent of GDP from its present level," the report said.

"During Jul-Apr FY2017, FDI amounted to $1.73bn compared to $1.54bn during the same period last year, posting growth of 12.75pc," the govt said.

"The major FDI inflows during the period under review were from China ($744.4m), Netherlands ($478.6m), France ($171.0m), Turkey ($137.7m), US ($103.2m), UAE ($48.4m), UK ($47.6m), Italy ($47.4m), Japan ($42.1m) and Germany ($40.5m)."

"Food, Power, Construction, Electronics, Oil & Gas exploration, Financial Business and Communication remained the main recipient sectors.

"FDI inflows continued to maintain a moderate pace marked by improvement in multinationals’ confidence in the country’s economy," it added.

"We are hopeful of growth in foreign direct investment because our human resource cost is better than China," the finance minister said at the press conference.

"Businesses are looking to relocate away from Japan and China, and Korean and Italian businesses have indicated that they want to set up plants here," he said.

Remittances

"During July-April FY2017, remittances reached the level of $15.6bn compared with $16bn in July-April FY2016," the government's report said.

Remittances are expected to reach $19.5bn for the year, while foreign direct investment is expected to reach $2.58bn in FY17.

During July-April FY2017, the major share of remittances is from Saudi Arabia 29.0pc ($4,517.2m), UAE 22.2pc ($3,468.4m), USA 12.4pc ($1,929.3m), other GCC countries 12.1pc ($1,881.2m), UK 11.8pc ($1,846.7m), EU 2.4pc ($374.4m) and Other Countries 10.1pc ($1,579.0m).

Fiscal control

"During the first nine months of current fiscal year, fiscal deficit has been recorded at 3.9pc of GDP against 3.5pc of GDP during the corresponding period of FY2016 on account of less than expected tax revenues owing to tax relief measures to promote investment and boost economic activity along with higher development & security related expenditures."

"[...] It [the annual fiscal deficit] is likely to be higher than the [3.8pc] target," it conceded.

"Total revenues grew at 6.2pc to stand at Rs3.15tr during July-March FY2017 against Rs2.96tr in the comparable period of FY2016.

"Low growth in total revenues came from 8.6pc growth in tax revenue and 6.2pc decline in non-tax revenues.

"During July-March FY2017, tax revenues were at Rs2.69tr against Rs2.48tr in the same period of FY2016.

"Less than required growth in tax revenues is primarily attributed to the relief measures provided in five zero-rated sectors, fertilizers and pesticides combined with lower rates on petroleum," the report said.

Tax revenues for the year are expected to reach Rs4,306bn for the year, whereas the overall fiscal deficit is expected to touch Rs1,276bn or 3.8pc of the GDP.

Inflation

Inflation clocked in lower-than-expected at 4.09pc, compared to the expected 6pc. Food price inflation remained at 3.86pc, while prices of non-food items grew 4.25pc in Jul-Apr FY17.

"The current year started with inflation at 4.1pc in July 2016, rose to 4.9pc in March 2017 and then slowed down to 4.8pc in April 2017.

"On average during Jul-April FY 2017, it recorded at 4.1pc. The [...] present trend suggests that it will remain below the target.

"The uptick in inflation is due to the revival of international commodity and oil prices, along with a rise in domestic demand due to pick up of economic activities," the government noted.

"Increasing oil and commodity prices remains a concern. Global commodity and oil prices are expected to move in an upward direction, which will be affecting domestic inflation.

"However, given the increase in agriculture production and sufficient food supplies, stable exchange rate, effective monetary policy, inflation is expected to remain below the target," it added.

Trade

"Pakistan’s external sector continued to face severe stress during 2016-17.

"Though the rate of export decline was stemmed, Pakistan’s exports declined by 3.06pc during the first nine months of FY2017.

Over Jul-Mar 2017, total exports reached $15.12bn dollars, compared to $15.6bn last year.

"Imports, however, continued to grow at a much faster rate and grew by a large percentage of 18.67 during the first nine months of FY2017 as compared to the previous year.

Over Jul-Mar 2017, total imports reached $38.5bn dollars, compared to $32.44bn last year.

"During July-March FY2017, the increase in imports of capital equipment and fuel significantly put pressure on the external account.

"Recession in advanced economies, impediments at structural institutional and entrepreneurship both exogenous and endogenous factors are responsible of stagnant exports.

"However the resolve of the government to improve the exports and in this connection a number of initiatives have been taken. As a result, the negative effects of exports are bottoming out and visible improvements in recent months have been witnessed," the report said.

Balance of payments & current account

"A reversal in global oil prices led to an increase in POL imports, accompanied by falling exports, as a result the trade deficit grew by 33.1pc to $17.8 billion in July-March FY2017.

"While remittances and Coalition Support Fund inflows both declined slightly over the same period last year, however, the impact was offset by an improvement in the income account, mainly due to lower profit repatriations by oil and gas firms.

"The current account deficit increased to $6.1bn in July-March FY2017, against $2.4bn in July-March FY2016," the government reported.

Reserves & exchange rate

"With the current account deficit widening and not being fully offset by financial inflows, the country’s total liquid foreign exchange reserves as on end-March FY2017 declined to $21.57bn, of which the State Bank's reserves accounted for $16.47bn and commercial banks $5.10bn.

"The level of foreign exchange reserves is a sign of economic stability that has been achieved due to the deep-rooted and comprehensive economic policies and reforms undertaken by the present government. Currently, foreign exchange reserves are at reasonable level," the government claimed.

"The average exchange rate during July-May FY2017, at 104.79 to a dollar, was down marginally (0.5 percent) against last year’s comparable average of 104.30.

"The stability in the exchange rate was a result of the still elevated level of liquid reserves available with SBP; this helped keep interbank sentiments in control during the period under review," the government said.

Education

"The Government of Pakistan is cognizant increase the flows of resources to the education sector by ensuring proper and timely utilization of funds to achieve the target of 4.0pc of GDP by 2018."

FY2016 saw the education expenditure stand at 2.3pc of GDP, while the trajectory of the provisional six-month record from the first half of FY2017 shows that the government's expenditure on education will not even match last year's proportion, let alone the set target of 4.0pc.

Health

"Health spending is slow but persistently rising."

"The country is spending 0.5 to 0.8 percent of its GDP on health over the last 10 years. These percentages are less than the WHO bench mark of at least 6 percent of GDP required to provide basic and life saving services."

"According to World Bank latest report, currently Pakistan’s per capita health spending is $36.2 which is below than the WHO’S low income countries bench mark of $86."