Tweaking the path to growth

Breaking low-growth shackles, the economy moved past the 5pc (in 2007-08) economic growth rate to an estimated 5.28pc — highest in around nine years.

The government is expected to spend more than Rs800 billion allocated for the public sector development programme by year end owing to higher than targeted foreign aid flows.

While there may be those pointing out that the GDP growth target of 5.7pc was missed except for some slippages on the manufacturing side, all other sectors particularly agriculture and services, either achieved or surpassed targets after a gap of many years.

This calls for more effort than complacency.

The current growth rate calls for more effort than complacency

The lower than targeted growth in manufacturing at 5.3pc instead of 6.1pc also appeared to be visible in, or because of, export losses and will need to be examined to determine whether international orders were on the lower side due to a global slow down or the unavailability or uncompetitiveness of exportable surplus.

The government estimates total exports at $21.7 billion during current year instead of the $24.8bn target.

On the whole, the industrial sector is estimated to have grown 5.02pc against a target of7.7pc and revised growth of 5.80pc last year. Here the manufacturing showed a 5.3pc growth instead of the targeted 6.1pc and 3.7pc growth last year. Large scale manufacturing posted a 4.9pc growth, well behind its 5.9pc target even though it performed better than last year’s 2.9pc increase.

Surprisingly, electricity generation and distribution and gas distribution showed a miserly 3.4pc growth against a target of 12.5pc and last year’s 8.4pc growth despite the government’s full focus on these areas.

Construction, another governmental priority, also increased by 9pc, against an increase of about 15pc last year, and missed the target of 13.2pc. Both these areas were also part of the CPEC focus that consumed more than Rs450bn during the year.

The government has flagged exports loss as a major challenge to tackle in the coming budget.

According to Planning Minister, Ahsan Iqbal, export decline was a major challenge for Pakistan because of a contraction in leading world markets like the United States. Nations with a focus on value addition were exceptions but Pakistan has been focused on commodity exports over the past 30 years, he said.

Therefore, allocations have been proposed for cluster based development in agriculture, mining and industry to secure growth of the entire supply chain of value addition, he said.

Based on this, exports are projected to grow by 6.4pc next year to $23.1bn against this year’s decline to $21.7bn. At the same time, the import growth target has been set at 9.6pc to $50 billion instead of $45.7bn this year.

As a result, next year’s trade deficit has been estimated at $26.9bn against $24bn this year while current account deficit would increase to $10.4bn compared to $8.3bn this year. As such, the current account deficit would amount to 3.1pc of GDP next year against 2.7pc of GDP this year.

In overall terms, the agriculture sector achieved its growth target of 3.5pc this year from a low of just a 0.3pc increase last year. Sub-sector important crops registered an increase of 4.1pc in its output, significantly higher than 2.5pc target and compared to a negative growth of 5.5pc last year.

Livestock subsector retained its last year growth rate of 3.4pc although it missed the 4pc growth target. Cotton ginning also showed a 5.59pc growth this year over last year when cotton output registered a 22pc decline.

The services sector as a whole grew by 6pc against a 5.7pc target when compared with last year’s 5.6pc growth. The financial sector led the growth with 11pc.

With more than Rs2.1 trillion public sector investments next year, the coming year’s economic growth target has been set at 6pc. In a major policy shift, devolved programmes like health and education would no more be part of federal PSDP ‘in accordance with the division of subjects between provincial and federal governments in the post 18th amendment scenario’.

A major focus of the upcoming development plan appeared to be allocations for non-core PSDP that included Rs45bn for the PM’s Global Sustainable Development Goals, Rs20bn for the PM’s Initiative, Rs25bn for gas development schemes, Rs45bn each for security enhancement and relief and rehabilitation of internally displaced persons.

As such, the core PSDP would be put at Rs866bn against Rs655bn of the current year while non-core development spending would amount to Rs135bn. A special allocation of Rs27bn has been made for completion of CPEC projects.

Ahsan Iqbal believed the 5.3pc growth rate had come about because of steps taken by his government towards macroeconomic stability, infrastructure development, energy supply and human resource development.

To achieve a 6pc GDP growth rate, the agriculture sector is targeted to maintain its current year growth rate of 3.5pc while important crops would grow by 2pc instead of 4.1pc this year.

Manufacturing sector is projected to grow by 6.4pc next year supported by a 6.3pc increase in LSM. The services sector was also expected to grow by 6.4pc instead of 6pc this year while livestock would slow down to 2pct growth instead of 3.4pc increase this year.

Completion of CPEC would continue to be the top objective of the next budget with Rs324bn allocation for National Highway Authority instead of Rs190bn of this year.

Another Rs61bn would go to power sector instead of Rs130bn this year, perhaps due to nearing completion of major generation projects. The total Rs385bn allocation for CPEC would also include foreign funding of Rs145bn.