WHILE the national eco-nomy is not out of the woods as it faces persisting domestic and external problems, the government has set GDP growth rate at 4.3 per cent for 2012-13, up from 3.67 per cent estimated for the current fiscal year.
The target is expected to be achieved largely by an estimated growth of 4.1 per cent in agriculture, 4.4 per cent in manufacturing, and 4.6 per cent in services. Whether or not these targets are achieved will depend on the policy incentives and enabling environment provided in the next budget.
A cash-strapped government cannot spare enough resources to stimulate the economy while the private sector, the engine of economic growth, is hamstrung by energy shortage, poor infrastructure, security situation and high bank lending rates.
A strong segment of local industries is inclined towards rent-seeking and suffers from low productivity of existing assets and the lag invalue-addition.
The growth of agriculture sector for 2012-13 has been derived on the basis of expected contribution of major crops (four per cent), minor crops (4.5 per cent), livestock (4.2 per cent), fishery (two per cent) and forestry (two per cent). The three crops (wheat, rice and cotton) influence the overall growth trend.
Agriculture suffers from low productivity, heavy post-harvest losses, poor infrastructure (poor farm-to market roads, shortage of storage facilities, chain of cold storages for perishable items) and a skewed market manipulated by middlemen, among others. Thus a bumper crop output is as much a problem as severe production shortfall. More alarmingly the wheat sowing area declined by 2.6 per cent in 2011-12, leading to a 6.7 per cent fall in wheat output potential.
Output of minor crops has contracted and remained below target over the past few years. The growth in minor crops largely depends on the revival of output of chillies, oilseeds and pulses. But the withdrawal of farm input subsidies has increased the cost of production of these crops, driven by surge in diesel and fertiliser prices.
The trend of transfer of resources from agriculture to trade means that banks do not leave enough money (except when it comes to big landlords) to invest in raising farm productivity. Much of the benefits of rise in support or market price for farm produce is siphoned off by the middle men, transporters, suppliers of farm inputs etc. This is evident from the huge difference between abnormally low farm prices and high consumer rates.
The huge market price incentive and increase in the consumption of livestock products offers bright prospects for livestock development. So the target of livestock growth seems achievable. However, investment in dairy sector needs to be encouraged to spur growth in this sector which has also enormous export potential.
Going by the paltry growth in 2011-12, the growth projection for the manufacturing sector is optimistic. The government is hopeful that the appointment of an independent board of governors in utility companies will help unclog the system and improve power supply to the sector.
Regarding foreign trade, Pakistani exports have been affected by recession in European countries and fragile economic recovery in the United States. While no let up is seen in the prevailing liquidity crunch in international markets, budget-makers project export growth of 4.7 per cent to reach $26 billion against the revised target of $24.8 billion this year. Imports are expected to rise to $42.7 billion, resulting in a trade deficit of $16.8 billion.
Much of the low volume of export earnings is explained by sales of low value added products in the international market. Budget makers seem to have no plan on the one hand to encourage the value added sector and the competitiveness of locally manufactured products, or on the other to discourage the export of raw materials.
On the demand side, both savings and investment as a ratio of GDP have been falling for the past few years. But officials are optimistic that national savings are likely to improve from 10.7 per cent of GDP in 2011-12 to 11.1 per cent in 2012-13. The investment is targeted to improve from current level of 12.5 per cent of GDP to 13.2 per cent, which is still lowest level since 1974.
With foreign direct investment (FDI) falling sharply over the last four years, both because of external and domestic factors, no FDI projection has been made for the next year.
Despite facing severe financial distress, the government also failed to reduce expenditure and increase tax revenues to bring fiscal deficit toa sustainable level or step up falling development spending to push up economic growth rate.
The government needs to prioritise allocation of resources to sectors like energy, water, human capital, innovation and technology transfer to lay the foundation for sustainable development. But provinces will also have to mobilise domestic resources especially taxes from the agriculture sector.
The monetary expansion for 2012-13 will be aligned to real GDP growth of 4.3 per cent and inflation target of 10.5 per cent. With not much improvement seen in foreign assets, monetary expansion will come from net domestic expansion.
The budget makers have projected that the current account deficit will increase to $5.2 billion against 4.2 billion for the current fiscal year, while the SBP reserves are projected to fall to $8.2 billion from $11.4 billion.