ISLAMABAD -The PML-N government has accepted that it could not achieve the economic growth target of 4.4 percent during outgoing financial year 2013-14, as it would be only around 2.8 percent already projected by International Monetary Fund (IMF).
The government had projected that Pakistan’s GDP growth rate would reach to 4.4 percent during FY2014. However, in a latest development, the government has accepted that it would miss the target, as economic growth would remain around 2.8 percent.
The Finance Ministry latest document, Medium Term Debt Strategy (MTDS) 2014-18, has revealed that country GDP target would remain at 2.8 percent during FY2014. The IMF had already estimated that Pakistan’s GDP growth would remain at around three percent, which was disagreed by the Finance Minister Senator Ishaq Dar, as he was expecting much higher rate, around four percent.
“Pakistan’s economy has been marred with a deepening security and energy crisis, crippling policy inactions and natural disasters in the shape of floods and torrential rains. These factors have culminated in economic slowdown with GDP growth rates averaging around 3 percent during the last five years. However, economic restructuring as envisaged by the government would improve economic growth to 5 percent by 2017-18”, stated the MTDS.
Similarly, the government would miss the inflation rate during outgoing fiscal year. The MTDS has projected that inflation rate would go to 11 percent against the government’s estimation of eight percent during FY2014. According to MTDS, the IMF projection for inflation rate was 7.9 percent for 2013-14, however, in consultation with all stakeholders, it was unanimously decided to keep it at 11 percent to make it more realistic for MTDS purpose.
However, the MTDS has revealed that government would achieve the fiscal deficit target, as it would be around 5.5 percent of the GDP against the target of 6.1 percent for the outgoing financial year 2013-14. It is expected to progressively raise the total revenue from 13.2 percent of GDP in 2012-13 to 15.2 percent in 2017-18. Revenue mobilisation efforts would be followed by measures to rationalise non-developmental expenditure through reforms in the energy sector and public sector enterprises, phasing out subsidies to curb the drainage of government resources. The government’s fiscal policy measures are projected to yield a gradual improvement in the fiscal deficit from its current level of 8 percent to 3.5 percent in 2017-18.
Talking about the Current Account Deficit, the Medium Term Debt Management Strategy (MTDS) 2014-18 projected that it is set to be poised at 1 percent for 2013-14 before widening to 2 percent by 2017-18. On the other hand, the capital flows are set to improve through the issuance of Pakistan Sovereign Bonds and the disbursement of other programme loans hinged with the successful implementation of structural reforms as envisaged by the government. The improved economic outlook would lead to a progressive rise in the foreign direct investment from $2.6 billion in 2013-14 to $4 billion in 2017-18. The rise in the foreign direct investment along with the rising net capital inflows and a sustainable current account balance is projected to stabilise the balance of payments over the medium term.
Similarly, official foreign reserves are projected to rise to  $9.4 billion in 2013-14 and $16.7 billion by 2017-18. The growth in the foreign exchange reserves is hinged with positive capital inflows and a rise in direct foreign investment. The exchange rate is expected to stabilise over the period owing to sustained economic growths, reduction in fiscal deficits and easing pressure on balance of payments.
The MTDS also highlighted risks associated with macroeconomic indicators including adverse security situation along with impeding energy crisis, high fiscal deficits, rising inflation and inefficient public sector enterprises, which could peg back the growth projections
The Finance Ministry documents also disclose the government’s plan to take loans from international financial institutions. Pakistan has auctioned the Eurobonds worth of $2 billion in FY2014, and has planned to introduce same bonds worth of $500-$750 million in next three years.
According to MTDS, public debt stock recorded at Rs.14,366 billion as on June 30, 2013, representing an increase of Rs1,699 billion or 13 percent higher as compared with last fiscal year. External Debt and Liabilities (EDL) stock was recorded at $59.8 billion at end-June 2013 compared with $65.5 billion in 2011-12.
Government estimated set of macro-economic projections as part of its medium term budgetary framework. These projections are consistent with the macro-economic assumptions outlined in the first review of the IMF’s Extended Fund Facility (EFF) programme. The EFF arrangement is expected to have the support of additional annual $5-6 billion on average from other development partners during the programme period. In addition, the government aims economic restructuring through measures such as revenue mobilisation, rationalising expenditure, revitalising the key public sector enterprises and resolving energy sector issues to ensure sustainable growth. The resultant economic growth is expected to contain the future fiscal deficits. The expected increased external financing along with curtailed current account deficit will reduce pressure on SBP reserves over the medium term.