Finance Minister Hafeez Shaikh. — Photo by AFP

ISLAMABAD, May 31: The fiscal year that is about to end was a bad one. This is the unsurprising gist of the Economic Survey 2011-12.

The official data only confirmed the already existing general perception that the current financial year was bad economically because most targets set last year were not met and key challenges remained just that — key challenges.

The only good news seemed to be that the growth in most sectors was an improvement on the figures of the previous fiscal year.

Take the economic (real gross domestic product) growth - it was a mere 3.7 per cent while the government had estimated that it would reach 4.2 per cent. However, this was still better than the three per cent growth witnessed the year before.

Only a few sectors such as inflation and agriculture seemed to be on target.

Overall, the economic story of the previous year is not an easy one to spin but Finance Minister Dr Abdul Hafeez Shaikh tried his best.

He built his narrative around the predictable villains — higher international oil and commodity prices, the poor security situation and natural disaster within such as flood, the global economic crisis and investors’ negative perception of Pakistan.

His argument was that given the circumstances, the economic conditions were “not that bad as are being presented”.

As a result, he claimed that the government had set the growth and inflation trends in a right direction with “three consecutive years of continuous improvement”. Although he conceded that this was not enough, he added that “the people were suffering from a high rate of inflation; they are worried as are the politicians”.

Energy woes

While on the topic of the politicians’ worries he admitted the government had been struggling for years to cope with the energy shortages and high electricity price. He accepted that the government had failed in the sector despite providing over Rs1.2 trillion in subsidies in more than four years.

But he hastened to add that the issue was not of energy shortage but affordability and the readiness of the consumers to pay the real price of energy. Agreeing that the energy crisis was primarily a governance issue, he spoke of provinces and consumers that were involved in theft and leakages and Rs300 billion worth of unpaid electricity bills.

The survey put the fiscal deficit in the first nine months of the current year at 4.3 per cent against a target of 4 per cent. The report said that the projection for fiscal deficit had been revised to 4.7 per cent — the inflated figure was estimated to account for “envisaged surpluses from provincial governments, the non-tax revenues which depends on inflows into the coalition support fund and strict control over expenditures”.

The missing deficit figures

Interestingly, the power sector expenses had not been included in the deficit. When asked why, Mr Shaikh answered that anyone could add the figure themselves to get the full picture.He was right as an official said that if the power sector subsidies and consolidation of debt were taken into account the deficit would be a whopping 6.85 per cent of GDP.

These three (agriculture, manufacturing and construction)  sectors did better than they had the previous year even if all of them missed targets.

According to the Economic survey, the agriculture sector posted a growth of 3.1 per cent against a target of 3.4 per cent though this was still an improvement over the 2.4 per cent growth of the year before.

The manufacturing sector grew by 3.6 per cent, nearly reaching the target of 3.7 per cent. Large-scale manufacturing grew by 1.1 per cent, which is an improvement over the one per cent growth of last year though it fell short of the target of 2 per cent annual target.

The construction sector improved by 6.5 per cent against a negative growth of 7.1 per cent witnessed last year.

On the other hand, the services sector grew by 4 per cent. It not only missed the target of 5 per cent, the sector had also done better in the last fiscal year when it grew by 4.1 per cent.

‘Good news about inflation’

The minister said inflation measured by the consumer price index had maintained a steady decline over the past three years and stood at 10.8 per cent in 10 months of the current year while it was 13.8 per cent last year. The wholesale price index and sensitive price indicator also declined to 11.2 per cent and 8.5 per cent in comparison to the 21 per cent and 18 per cent of last year.

When in trouble hide information

Real investment has declined from 13.1 per cent of GDP last year to 12.5 per cent this year though it fell short of the target of 13.8 per cent. National savings also drastically declined to 10.7 per cent of GDP, which was lower than the target of 13.2 per cent and the 13.8 per cent recorded in the previous fiscal year.

Mr Shaikh insisted that the low investment was due to the poor perception of Pakistan internationally.

And the only solution the government apparently has for this problem is to hide information. The minister explained that concerns about this image compelled the government to not provide any information on how much the war against militancy had cost Pakistan – a chapter that had been a fixture in previous economic surveys.

Wishful thinking?

The minister said that the tax-to-GDP ratio was expected to start improving from this year as revenue collection in the first 10 months had increased by 25 per cent. The increased tax collection, he said, was important to reduce reliance on international funding though he still complained that powerful groups and industries were not ready to pay their fair share of dues.

Federal resources

Once again, the finance minister explained that the federal government was left with only 25 per cent of the total revenues to meet its various expenses including defence and debt payments as the rest had gone to the provinces.

His point was that the expenditure of the provincial governments should also become a part of the national discourse instead of the federal government being blamed for all the problems.


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