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ECONOMIC SURVEY 2016-17 REVIEW: Economy crosses $300 Billion mark with vital support from services sector

Pakistan’s economy surged past the $300 billion mark in the outgoing fiscal year. The economy grew at a rate of almost 5.3 percent, the highest in a decade, with vigorous support from the services sector. Agriculture blossomed following a slump last year. Its growth rate came in at 3.46 percent, narrowly missing its target. The share of services sector increased to 59.6 percent against 19.5 percent share of agriculture and industry’s share of 20.9 percent.

On the whole, the industrial sector is estimated to have grown 5 percent against a target of 7.7 percent and revised growth of 5.8 percent last year. Large-scale manufacturing posted a 4.9 percent growth, well behind its 5.9 percent target even though it performed better than last year’s 2.9 percent increase. Electricity generation gas distribution showed a meager 3.4 percent growth against a target of 12.5 percent and last year’s 8.4 percent growth despite the government’s full focus on these areas.

The rising deficit owed itself to declining remittances, which fell 2.6 percent to $15.6 billion. Foreign direct investment on the other side was almost double at $1.73 billion compared to $860 million.

Foreign exchange reserves as of May 23 stood at $20.93 billion including the central bank’s $16.15 billion despite repayment of $500 million to China and another $500 million Eurobond contracted by previous regimes. Per capita income in dollar terms improved by 6.4 percent to $1,629 a year compared to 1.1 percent growth last year.

National savings on the other hand declined to 13.1 percent of GDP this year against 14.3 percent last year. The stock market had now gone beyond 52,000 points from 20,000 in 2013 while market capitalization had doubled to $10 trillion.

Finance Minister Ishaq Dar while announcing the Economic Survey 2016-17 stated a steady improvement in the performance of all productive sectors. He warned the country’s economic take-off is at stake and cited a report by PricewaterhouseCoopers, which projects Pakistan becoming the world’s 20th largest economy by 2030 and 16th largest by 2050. However, State Bank of Pakistan noted that sectors with high growth have reached capacity and unless capacity is increased there will be no further increase in output.

Dar even claimed exports have declined and imports increased but attributed the former to low commodity prices and the latter to rising oil prices. Capacity may have prompted Dar to claim that a rise in machinery imports accounted for the bulk of the import rise of 6 billion dollars from 2016 to 2017. Machinery imports as per the Survey accounted for 2.1 billion dollars with power generating machinery accounting for one billion dollars.

He noted belligerently rupee is not overvalued and that does not account for a decline in exports. The quarterly reviews of the IMF where the overvalued rupee is consistently noted as a major deterrent to increasing exports. The Survey 2015-16 notes revaluation gains with respect to public debt and notes that the impact of fresh external borrowing was partially offset by revaluation gains during the first nine months of the current fiscal year.

Dar also noted a rise in tax revenue by 86 percent from 1,946.4 billion rupees in 2013 to 3,621 billion rupees in 2017. This was largely attained by an across the board increase in the levy of sales tax, raising taxes on existing taxpayers, including double taxation. For example, a salaried individual would pay income tax and on each withdrawal of more than Rs50,000 from the banking sector, raising regulatory duties, and by allowing the non-filers to pay a higher rate on purchases of products/services, including banking services (even those who are exempt from filing returns).

Total domestic debt rose from 9,521.9 billion rupees in 2013 to 14,748 billion rupees in 2017. This was a 54 percent rise in just four years and external debt and liabilities rose from 60.9 billion dollars in 2013 to 75.7 billion dollars in 2017. This was a rise of 24 percent in just four years.

In addition, the Survey notes that commercial loans were provisionally zero in the current year though in the text it notes that the government borrowed 1,315 million dollars from commercial lenders abroad. The revival of the growth process is most visible in the headline GDP figure that was recorded at 5.3 percent this year, climbing above the 5 percent level for the first time in a decade.

The current account deficit will climb to $8.5 billion by the end of the year, compared to $2.5 billion last year. Much of the momentum this year has come from agriculture, which has benefited from subsidized fertilizer as part of a package of incentives announced by the government last year, when the sector experienced negative growth.

Financial services have also contributed significantly to growth in services, according to the minister, who cited a massive increase in the asset base of banks.

The Annual Economic Survey, which gives an overview of the performance of the economy over the previous year, showed once again that the government’s projections were far from being met.

This shows that the investments pouring in through the China-Pakistan Economic Corridor are having an effect on the economy. That inflation clocked in well below expectations, at just over 4 percent as opposed to the predicted 6 percent is another sign of the strength of the economy.

The industrial and services sectors continue to boom, with both registering growth of more than 5 percent and the service sector now contributes to 60 percent of our total GDP. It is a sign of a maturing economy when there is so much expansion in the service sector.

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