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Review of saving-investment gap in Pakistan

Because of contained inflation in Pakistan, the Ministry of Finance revealed that there was rise in consumption both by private agents and general government. It was mentioned in a statement that for July-March FY2018 current account deficit remained at US$ 12.0 billion and it was predicted that for complete year, it will be almost US$ 15.7 billion i. e, 5.0 percent of GDP (Gross Domestic Products). Thus for FY 2019, national saving and domestic saving as percentage of GDP stayed almost at same level of last year. This implies that national income remained less than expenditures during FY2018 as against with FY2017 which resulted in rise in saving-investment gap.

Economists revealed that rise in saving-investment gap in turn resulted in higher current-account deficit. During FY2018, current account deficit remained higher than FY2017 which resulted in raised borrowing from the external sources. They have also mentioned in a statement that during FY2018 Gross Fixed Capital Formation (GFCF), considered as fixed investment, reached at Rs 5,099.1 billion as against to Rs 4,632.8 billion previous year recording a growth of 10.1 percent. Private sector GFCF recorded a growth 5.2 percent as it increased to Rs 3,371.2 billion as against to 3,205.5 billion previous year while the public sector GFCF raised to Rs 373.3 billion as against to 339.5 billion previous year explaining a growth of 9.9 percent. In the economic survey’s statistics showed that estimates of GFCF in the General Government sector are based on budgetary data of federal, provincial and districts governments.

Estimates for the year FY2018 are placed at Rs 1,354.6 billion as compared to Rs 1,087.7 billion in previous year, which are higher by 24.5 percent. The expenditure on GFCF incurred by federal, provincial and district governments has increased by 23.9 percent, 22.1 percent and 45.7 percent, respectively. The economic survey also showed that at current prices, in public sector, major positive contribution in GFCF remained in agriculture (257 percent) which raised from Rs 122 million to Rs 435 million followed by electricity & gas (70.9 percent) which increased from Rs 138.5 to 236.7 billion. While others in transport & communication (71.2 percent) (Pakistan National Shipping Corporation raised from Rs 0.6 billion to Rs 5.5 billion, Port Qasim Authority raised from Rs 0.5 billion to Rs 9.2 billion, PARCO raised from Rs 0.07 billon to Rs 12.8 billion).

The government officials also calculated that some industries in public sector have registered pessimistic growth counting mining & quarrying (57.1 percent), which declined from Rs 64.2 billion to Rs 27.6 billion because of OGDC (Plant & Machinery fell from Rs 48.4 billion to 12.7 billion), LSM (39.1 percent) because of National Refinery Ltd (Rs 28.1 billion vs 0.37 billion). It is also urged that Railways in transport & communication fell by 72.9 percent (Rs 39.4 billion to Rs 10.7 billion) and finance & insurance fell by 35.1 percent because of EOBI (Rs 9.8 billion to 4.9 billion). In private sector, at current prices, the predicted of GFCF in agriculture sector reached at Rs 1000.2 billion during FY 2018 as compared to Rs 928.9 billion previous year explaining a growth of 7.7 percent largely because of rise in local agriculture machinery (from Rs 39.7 billion to Rs 57.0 billion) and value of stock in the livestock (from Rs 730.5 billion to 776.0 billion). Estimated of GFCF in mining and quarrying sector during FY2018 were estimated at Rs 50.1 billion as compared to Rs 49.8 billion previous year recording a nominal growth of 0.6 percent because of less expenditure in exploration costs. Estimated of private sector GFCF in wholesale & retail trade sub-sector grew by 10.4 percent during 2017-18. The private sector GFCF in Transport & Communication sector increased by 0.4 percent in FY2018 to Rs 472.1 billion from Rs 470.0 billion last year. Mobile phone firms had reported provisional GFCF conservatively. Moreover, remaining sub-sectors like housing services and other private services recorded GFCF growth of 8.3 percent and 10.9 percent during 2017-18 respectively.

 

The economists stated that in the large scale manufacturing (LSM) sector, GFCF in private sector is composed of in production and under-construction units. Estimated of in-production units have been derived on the basis of census/survey of listed and non-listed firms. Estimated of GFCF in respect of under-construction manufacturing units are based on financial assistance of industrial investment disbursed through the Developmental Financial Institutions (DFIs), special banks, scheduled banks, Modarabas & leasing firms based data from all sources. Statistics also showed that GFCF for private LSM sector for the year FY2018 was estimated at Rs 481.9 billion as compared to Rs 479.5 billion during last year explaining a modest rise of 0.5 percent.

Conservative reporting of provisional capital formation by private firms was the major cause behind this slow rate of rise. Expenditures on GFCF for Electricity Generation & Distribution and Gas Distribution sector stood at Rs 6.3 billion during FY2018 as compared to Rs 9.2 billion previous year recording a fall of 31.2 percent chiefly due to lower expenditure recorded through IPPs. GFCF in construction sector for the year FY2018 was predicted as Rs 69.4 billion as compared to Rs 82.9 billion previous year, which is 16.2 percent lower. This was because of lower imported construction machinery which fell from Rs 50.4 billion previous year to Rs 42.6 billion FY2018. GFCF in finance & insurance industry also declined by 0.4 percent during 2017-18 due to conserve posting by commercial banks and insurance firms in Pakistan.

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