ISLAMABAD - The Ministry of Finance on Wednesday claimed that incumbent government had achieved a remarkable economic turnaround in last four years due to economic reforms launched after assuming charge in 2013.
The ministry has issued detail statement on the economic situation soon after Finance Minister Ishaq Dar has written to Prime Minister Shahid Khaqan Abbasi seeking relief from his duties. Dar has requested for “Leave of Absence” in light of his health. Opposition political parties have criticised the economic situation due to the policies of Dar.
However, the ministry presented rosy picture, which has not mentioned the loan taken by the government during last year in its statement. The incumbent government had taken around $35 billion foreign loans during last four years in order to maintain its reserves and repay previous loans. About $17 billion of the total loans taken were utilised to repay the previous debt during last more than four years.
“The present government inherited a fragile economy characterised by low investments, high inflation, low GDP growth, high fiscal deficit, low Tax to GDP, low level of foreign exchange reserves and a looming external debt default with rising power sector circular debt and severe energy crisis,” said the ministry. However, due to the economic policies, the GDP growth had reached to 5.3 percent during last fiscal year, which is the highest in the last ten years. Tax-to-GDP ratio has increased from 10.1 percent in 2013 to 12.5 percent in 2017. Fiscal deficit has been reduced from 8.2 percent in 2013 to 4.6 percent in 2016. Fiscal deficit in FY17 increased to 5.8 percent. Fiscal deficit 2016-17 increased by 1.6percent of GDP (from 4.2percent to 5.8percent).
Major contributors were provincial deficit 0.9 percent, higher project aid 0.4 percent and lesser FBR revenue collection 0.5 percent of GDP. FBR tax collection registered a cumulative growth of 77 percent between FY2013-2017. Size of Development spending has increased by 300 percent in four years. Inflation has been brought down in the range of 4-5 percent in FY2017 from the average of 12 percent between 2008-2013. Policy rate is at a historic low of 5.7 percent down from 9.5 percent in FY2013. Pakistan’s foreign exchange reserves which were $11.02 billion while SBP reserves were $6 billion in June 2013, presently reserves are at a healthy level of about $19.8 billion with SBP reserves at $13.6 billion.
Current account deficit was recorded at $12.4 billion during FY17 as compared to $4.9 billion in FY16. It was mainly due to increase in imports of machinery, industrial raw material and petroleum products. These imports are enhancing productive capacity of the economy for higher output and exports in future. As for stagnancy in exports, it was largely due to global economic conditions, low commodity prices and severe bottlenecks in the energy and infrastructure sectors of the economy as well as adverse security conditions in the country. Workers' remittances which remained stagnant last year due to adverse economic conditions in the Middle East, stringent USA regulations and impact of Brexit, have returned to growth zone.
The security situation has significantly improved, uninterrupted energy is now being provided to the industrial sector and global economic outlook is positive. The government in January 2017 announced an export package of Rs180 billion which has started showing results. The government has also taken necessary policy measures to reduce import of non-essential products. Additionally, necessary measures for achieving increase in workers' remittances is also in progress.
GDP growth target for 2017-18 and beyond is above 6 percent per annum. Economic data for Q1FY18 (July-September) shows strong performance of the economy and reversal of some of the negative trends of past in external and fiscal situation. Exports, which registered a negative growth of 1.3percent in first half of 2016-17, have returned to growth zone. Exports during July-September FY18 posted a healthy growth of 12.4 percent as compared to the same period last year. Imports during first quarter increased by 25 percent; however, month-on-month basis growth in imports has begun to decelerate. Imports increased by 51.6 percent in July which decelerated to 9 percent in August and 22 percent in September. Workers' remittances have returned to growth zone showing an increase of 2.3 percent during July-October 2017. Current account deficit for the period July-October 2017 shows an improvement of 4 percent as compared to March-June period of last year. Evidently, the recent pressure on external account is transitory and is likely to peak out this year as various energy and infrastructure projects are completed by June 2018.
FDI inflow during July-October FY2018 was $940 million compared to $539 million during the same period last year, registering a massive growth of 74.4 percent. Tax revenue collection in Q1, 2017-18 increased by 20 percent. Fiscal deficit during Q1 stood at manageable level and was lower than the same period last year, signaling that fiscal consolidation is on track this year.
LSM growth during Q1, 2018 increased by 8.4 percent as against 1.8 percent last year. Increased manufacturing output is backed by low interest rate environment and low inflation. Cotton output this year is projected at 12.6 billion bales which is 17.8 percent higher than last year.
Clearly, the economic indicators for Q1FY2018 are reflecting strong performance of the economy and reversal of some of the negative trends which were witnessed in FY2017. More significantly, GDP growth target of 6 percent this year seems on track and may even be surpassed.