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Economic review of 2017-18 first quarter

The country’s economy continued to maintain its growth momentum during the last fiscal year says a yearly report issued by the Government of Pakistan, but many are of the view that despite revival of growth, Pakistan’s economy faces grave risks and vulnerabilities, however some leading economic managers of the country identified that the economic growth has enhanced with revival in manufacturing and agriculture.

“Rapid rise in tax revenue has strengthened public finance”, this was stated by the economic adepts in the review of the economy for first quarter 2017-18. However, they also mention that there are key foreign financing issues. At 4.4 percent of Gross Domestic Products (GDP), the current account deficit increased by 120 percent over the corresponding quarter previous fiscal and far exceeds the target set by Government of Pakistan. Foreign reserves have declined despite hefty external borrowing. So far, the present government has attributed the runaway rise in current account deficit to growth inducing machinery imports. Machinery import, however, did not rise during the quarter. Import of power generation equipment was declined by 17 percent.

The adepts also mentioned that our country no doubt is dependent on external savings and the economy is exposed to continuous loan rollover and re-pricing risks. Present correction in Rupee value may lessen imports and the deficit.

INFLATION IN PAKISTAN (Base 2007-08)
Index Averages July-Nov % Changes Nov over Nov % Changes
2017-18 2016-17 2015-16 2017 2016 2015
CPI 3.59 3.92 1.86 3.97 3.81 2.73
SPI 1.14 1.51 -0.26 2.13 0.61 2.06
WPI 1.69 3.05 -2.73 2.86 2.56 -1.67

The State Bank of Pakistan (SBP) predicts foreign exchange financing gap of US 12 billion in FY 2018. It is also mentioned that the gap will be higher. Next year’s foreign financing gap is a major economic risk. On the other hand fiscal deficit too is higher than target. This has raised government indebtedness, both external and domestic. These macroeconomic factors prevent maintained and long-term growth of the economy. They are the result of years of economic decision making that prioritizes firefighting to solve immediate challenges, but does not show resolve to deal with structural challenges. The issues point to an economic structure that does not permit the economy to considerably raise investment. It is also said that Large Scale Manufacturing (LSM) increased by a healthy 8.4 percent during first quarter. This was due to enhanced energy supply, better security, low policy rates, slow inflation, and past years’ investments. Agriculture has recovered from higher fertilizer offtake, higher credit and mechanization, support price for wheat.

GDP growth will be higher than last year’s 5.28 percent. An expansionary monetary policy coupled with largely steady exchange rate and some agriculture and industrial revival have stimulated growth. Continuous growth in public sector investment and China-Pakistan Economic Corridor (CPEC) development projects has also given impetus.

Foreign trade and relations

Trading industry experts stated that the Pakistani exports increased by 10.8 percent during the quarter and by an equal margin during July-November 2017. In December 2017, Pakistan and Brazil have moved forward in deepening relations in all fields mainly in commerce and trade, as numbers of MoUs and contracts have already been inked between these two states. Bilateral trade between Pakistan and Brazil has grown over the last 4 years by 100 percent from $225 million in 2013-14 to $449 million in 2016-17.

Recently, Pakistan has a negative trade balance with Brazil amounting to -$359 million during FY2017 with exports of $44.5 million and imports of $404 million. The Government of Pakistan is probable to actively engage with MEPs (Members of European Parliament) and the governments of the EU member Nations to seek their support for continuation of GSP plus status for Pakistan.

Experts also mentioned that the second biennial review of the GSP plus scheme for the country is presently underway and the review report would be submitted in January 2018. The European Parliament and Council have key roles in GSP plus review process. The EU accounts for 20 percent of Pakistani external trade with Pakistani exports to the EU amounting to $3.4 billion, chiefly textiles, medical equipment and leather products, and EU exports to Pakistan amount to $3.8 billion and consist mainly of mechanical and electrical equipment, and chemical and pharmaceutical products.

Furthermore, remittances increased by 2 percent during the quarter after declining 3.0 percent last fiscal. Foreign Direct Investment (FDI) seemed a healthy rise of 57 percent for the July-November 2017 period.

In addition, without reforms Pakistan’s weak macro-economy would affect more growth, particularly new investments. Year on year (YoY), the government external borrowing was increased by $ 4,521 million in September 2017 and by $767 million during July-September 2017. Economic managers also stated recorded that the total external debt and liabilities increased by $ 9,290 million, year on year, and by $ 2,071 million since July. Repayment of principal and interest during the quarter was $ 2.1 billion, of which $ 1,600 million was for government debt alone.

In last, we know that our country has been facing enormous challenges, ranging from an unbalanced economy, fragile governance and security to rampant terrorism. But perhaps its greatest challenge is to restore its credibility in the eyes of the world. If we want to make our economy strong then we must create a positive image in the world.

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