The provisional GDP growth rate for fiscal year 2020 is estimated at negative 0.38 per cent against a revised target of 2.4pc, Adviser to the Prime Minister on Finance Hafeez Sheikh revealed on Thursday during a press conference to unveil the Pakistan Economic Survey 2019-20.
The government's projection of a 0.38pc contraction, however, are still not as grim as the 2.6pc projected by the IMF and World Bank. Commenting on the difference between these projections, the PM's adviser said the IMF and World Bank were making bleaker assumptions keeping in view the severity and duration of the coronavirus pandemic.
“In my view, we will have a better estimation when this year ends on June 30.”
But he also hinted that he was not confident the government's projection was a better one. “The range of estimates we have given, this shows that we're not in a position at present that we could say with confidence what would be its result,” Sheikh said.
The PM's adviser said the government had inherited an economy deep in debt, with depleting foreign reserves and a default looking like a possibility.
The growth seen in the past government's tenure, Sheikh said, was being achieved by taking loans from abroad and then spending it in the country.
He further revealed that even though growth in the agriculture sector came in at 2.6pc, overall economic growth was hampered because other sectors reported negative growth: industry recorded -2.64pc while services sector recorded -3.4pc growth. Transport and communication growth also came in at -7.1pc for Jul-April 2020, he said.
The government, in the economic survey, said lockdowns imposed to curb the spread of Covid-19 "severely affected activity in contact intensive businesses" which is why the services sector posted negative growth of 0.59pc.
Sheikh said manufacturing contracted by 22.9pc year-on-year in March 2020 but added that "fiscal deficit was still manageable from July-March 2020 at 4pc of the GDP while last year it was 5.1pc of the GDP" in the same period.
Consumer Price Index (CPI) inflation for the period July-April 2020 came in at 11.22pc against 6.51pc during the same period last year.
"Perishable food items are the main contributory factor in jacking up the food inflation," according to the survey, with inflation of 34.7pc recorded in this category.
FBR tax revenue
Overall tax collection by the Federal Board of Revenue (FBR) grew by 10.8pc to Rs3,300.6 billion during July-April 2020 against Rs2,980 billion in the comparable period last year, according to the PES document.
"The rise in tax collection is attributed to various policy initiatives implemented at the start of FY2020 such as charging sales tax on more items at the retail price under 3rd Schedule, reinstatement of taxes on telecom services and an upward revision of tax rates on various salary slabs," the survey revealed.
But despite this increase, tax collection fell significantly below the government's revised target of Rs3,908 billion. The target was revised from an initial Rs4,807 billion "keeping in view the economic slowdown consequent to the pandemic," the survey said.
The survey further revealed that the pandemic had a "significant impact on revenue collection efforts of FBR".
"During the first eight months of FY2020, FBR recorded total revenue collection of Rs2,738 billion with a growth rate of 17.5pc over last fiscal year. FBR was able to achieve 91.4pc of its (first revised) target for the period," the survey noted.
However, after the outbreak of Covid-19 pandemic, an average negative growth rate of 13.4pc was recorded during March 2020 and April 2020 compared to last year as well as in comparison to projected collection, according to the survey.
In response to a question, Sheikh said the tax target fixed for the new fiscal year was "aspirational" but the government will not "aggressively" try to achieve it due to the current economic crisis caused by the pandemic.
Current account deficit
During July-March FY2020, current account deficit reduced by 73.1pc to $2.8 billion (1.1pc of GDP) against $10.3 billion last year (3.7pc of GDP), the survey revealed.
Exports in the said period increased 1.1pc to $18.3 billion, while imports reduced by a significant 16.2pc to $32.9 billion compared to $39.3 billion from a year ago.
This led to a shrinking of the trade deficit, which saw a reduction of 31pc to $14.7 billion in the July-March 2020 period compared to $21.3 billion last year in the same period. As a percentage of GDP, Pakistan's trade deficit now stands at 6.6pc, considerably down from 8.5pc a year ago.
"The current account deficit that we inherited was around $20 billion but we have reduced that to around $3 billion. This is a huge achievement of the government," remarked the PM's aide.
According to the survey, the significant reduction in the current account deficit "mainly reflected the impact of macroeconomic stabilisation measures undertaken over the past year, which have significantly curtailed the import demand of a wide range of non-energy and energy products".
The fiscal deficit went down to 4pc of GDP during July-March 2020 against 5.1pc of GDP in the comparable period last year, the survey revealed. But the government warned that by the end of the fiscal year on June 30, this deficit could widen to 9.2pc of the GDP (against a target of 7.5pc) when the true impact of Covid-19 and government's expenditures on that front are taken into account.
A turnaround was visible in the primary balance — fiscal balance net of interest payments on general government liabilities — which posted a surplus of Rs194 billion during this period compared to a deficit of Rs463 billion in the year-ago period.
"Overall, the improvement in fiscal account is largely attributed to higher provincial surplus and sharp rise in non-tax revenues," the PES document said.
Sheikh, during his presser, emphasised on this development, saying a primary balance surplus was result of the government controlling state expenses.
"This was the first time, I think, in the country's history, and our primary balance — meaning our expenses were less than our earning — went into surplus."
Sheikh said the government's "philosophy" was to reduce its expenses and spend what it saves on the masses.
"The whole year we did not take a single loan from the state bank, not a single government department or ministry was given a supplementary grant because we wanted to spend the people's money very carefully."
He also detailed the measures taken by the government to reduce the debts and liabilities while also providing relief to the people.
"Despite a small budget, we doubled the budget for the Ehsaas Programme so that the money could reach the people and the world can see that there is no political, racial or religious consideration. This was a big step," he told the press.
With input from Reuters.