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On the path to development

Updated April 16, 2018

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Maintaining a steady path and supported by an overall performance by key sectors, Pakistan’s economy has accomplished a decent growth rate of 5.79 per cent — highest in 13 years since 2004-05 when it grew by 7.52pc.

With the rate of inflation still below four per cent in the first nine months of the current fiscal year, this high-growth-low-inflation scene can be compared to a text book description of an economy at the take-off stage unless rising external vulnerabilities revert back to a crash landing and need for stabilisation during the upcoming political transition.

Some critics may still like to highlight slippages on some targets including the GDP growth target itself — 5.79pc growth instead of the 6pc target — and a particularly lower than anticipated output by the industrial sector. Yet it is heartening that the agriculture and services sectors performed better than targeted. This in fact partly compensated for the industrial sector’s growth.

Most of the numbers approved by the National Accounts Committee for GDP performance are subject to the usual revision based on availability of actual numbers for the entire fiscal year. This is particularly crucial for the current year because provisional estimate GDP and Gross Fixed Capital Formation (GFCF) have been worked out on the latest data available for six to eight months and projected for the whole year.

The current scene can be compared to a textbook description of an economy at the take-off stage unless rising external vulnerabilities revert back to a crash landing

The PML-Nawaz government was quick to claim the credit that its policies had pulled the economy out of the 2008-13 stagnation. “Due to our policies, the growth rate improved to 4.05pc in the first year and has since maintained an upward trajectory, culminating in the current years’ highest growth rate of 5.79pc. The average increase during the last five years has been 4.76pc”, said Prime Minister’s Adviser on Finance Dr Miftah Ismail.

What needs to be deeply studied in the coming months is why the industrial sector stayed short of expectation? This is more important as energy shortages, considered to be a key constraint to industrial activities, stood addressed to a large extent and the sector received uninterrupted energy supplies.

Equally strange is a miserly 1.84pc growth witnessed in electricity generation and distribution, and gas distribution, against a hefty target of 12.5pc set for the current year. What is interesting is a flat growth rate of 8.2pc in small and household manufacturing over the third year running which may be attributed to poorer documentation.

Dr Ismail plays down slower industrial growth of 5.8pc against 7.3pc target, saying the industrial sector is maintaining the upward growth trajectory and has reached the highest level of growth in the last 10 years. Likewise, Large Scale Manufacturing touched 6.13pc growth — slightly less than the 6.3pc target — during the first eight months of the current fiscal, the highest in last 11 years.

The adviser believed the delayed sugarcane crushing could have a part in lower industrial production.

On the whole, the commodity producing sectors are estimated to have grown by 4.84pc this year against a target of 5.4pc.

The agriculture sector has also preformed impressively at 3.8pc — highest in 13 years — and surpassed 3.5pc growth target as production of all major crops are reported to have registered significant growth.

The rise in production of three important crops namely rice, sugarcane and cotton was estimated at 8.7pc, 7.4pc, and 11.8pc respectively. On the contrary, decline in production, although provisional, was estimated at 4.4pc for Wheat crop and 7.1pc for Maize.

Together, important crops posted a healthy growth rate of 3.57pc against 2pc target while other crops increased by 3.33pc against 3.2pc target.

Cotton ginning also contributed significantly with a 8.72pc growth rate compared to 6.5pc target and last year’s growth of 5.6pc. With 3.76pc growth, livestock was close to 3.8pc while forestry sub-sector stayed far behind the 10pc target at 7.17pc — almost half the 14.5pc growth delivered last year.

On the whole, the industry is estimated to have grown 5.8pc against a target of 7.3pc and revised growth of 5pc last year. Here the manufacturing showed a 6.24pc growth instead of the targeted 6.4pc and 5.3pc growth last year.

Large scale manufacturing posted a 6.13pc growth, slightly below its 6.3pc target but much better than last year’s 5pc increase. Major contributors to this growth were cement (12pc), tractors (44.7pc), trucks (24.41pc) and petroleum products (10.26pc).

Construction, another priority sector of the current government, also increased by 9.13pc, against 9pc increase last year, and missed by a wide margin the target of 12.1pc.

The major contribution to 5.79pc GDP growth rate came from 3.85pc share from the services sector. The remaining 1.94pc share to GDP came from industrial sector (1.21pc) and agriculture (0.73pc).

The services sector has achieved 6.43pc growth during current fiscal year — second year in a row to have achieved above 6pc growth — but was primarily driven by general government services aka salary increases, inflation and other public sector expenditures.

Transport, storage and communication services performed the worst in at least three years at 3.58pc growth. This also missed the 5.1pc target for the current year with significant gap. Wholesale and retail trade improved by 7.5pc, exceeding 7.2pc target and better than last three years.

Financial and insurance services at 6.13pc, not only missed the 9.5pc growth target, but performed poorer than previous two years of 7.2pc and 10.7pc growth.

The size of GDP at current market prices was computed at Rs34.396 trillion for 2017-18, showing an expansion of 7.6pc over Rs31.963tr for 2016-17.

Published in Dawn, The Business and Finance Weekly, April 16th, 2018