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Pakistan’s growth rate of GDP has reached a new high. According to the data released by the Central Bank of Pakistan, the constant price calculation based on the 2005-06 fiscal year, the GDP growth rate of the 2017-18 financial year hit a 13-year high of 5.8%, an increase of 0.4 percentage points over the previous fiscal year. At the current price, the total GDP reached to Rs 34.4 trillion, but due to the depreciation of the Rupee against the US dollar is in excess of 15% in the 2017-18 fiscal year. And if the current US$ is converted to the exchange rate of Rs 124, the total amount of dollar-denominated GDP is about 277.4 billion US dollars, which is lower than the previous fiscal year. From the past five fiscal years, the GDP growth rate of Pakistan has shown a good trend of rising year by year.
Growth rate of the three major industries has increased
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In the 2017-18 fiscal year, the growth rate of the three major industries of Pakistan has increased. With the strong support of government policies, the cost of fertilizers and pesticides has decreased, the support for credit and cash subsidies has increased, while farmers’ enthusiasm has increased. Besides, the output of major crops such as cotton, rice and sugar cane has increased. The agricultural output value has increased by 3.8%, which is a high growth rate in 18 years and accounting for about 24% of GDP. Thanks to improved energy supply, long-term loose monetary environment and infrastructure investment, industrial output increased by 5.8% to a 10-year high, accounting for about 19% of GDP. Among them, steel, automobile, cement and food industries grew more significantly. The service industry has contributed the most to the three major industries of the Pakistani national economy. It continues to rely on major sub-sectors such as wholesale and retail, transportation and communications. The output value has increased by 6.4%, reaching a 10-year high, accounting for 57% of GDP.
Consumption is still the main engine of the economy
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From the perspective of demand structure, consumption is still the main engine of Pakistan’s national economic growth. The total demand is measured by “final consumption + capital formation + export”. The final consumption in 2017-18 is 32.5 trillion rupees, accounting for 79% of total demand. Capital formation and exports accounted for 14% and 7% respectively, while net exports remained negative. Compared with the previous fiscal year final consumption increased by 9%, capital formation increased by 9.8% and exports increased by 11.4%. From the perspective of Pakistan’s demand structure, if we want to maintain long-term economic growth and enhance competitiveness, we still need to focus on promoting investment and expanding exports.
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Attracting foreign investment has steadily increased the proportion of Chinese capital by more than half. In the 2017-18 fiscal year, foreign direct investment (FDI) inflows reached US$3.43 billion, with an outflow of US$670 million and a net inflow of US$2.76 billion, up 0.8% year-on-year, achieving a third consecutive fiscal year growth. Among them, the net inflow of FDI from China reached 1.58 billion U.S. dollars, accounting for 57% of the total FDI in Pakistan. It maintained the status of foreign capital in the first big country for five consecutive fiscal years. Britain, Hong Kong, Malaysia, and Switzerland are ranked two to five.
Inflation rate increases interest rates into the upward channel
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The average consumer price index (CPI) for the first 10 months of 2017-18 was 3.8%, which was relatively low. At the end of the fiscal year, in May and June of 2018, it reached 4.2% and 5.2% respectively, showing a significant increase. The Central Bank of Pakistan believes that the fiscal expansion policy in the second half of 2017-18 will be superimposed on the depreciation of the rupee and the high international oil prices will push up inflation. In January, May and July 2018, the bank raised the benchmark interest rates by 25, 75 and 100 basis points to 7.5%. Earlier, the Pakistani central bank kept the benchmark interest rate at 5.75% for 20 months.
Economic growth is not obvious for employment
According to the IMF calculation, the unemployment rate in Pakistan in 2017-18 is about 6%. In recent fiscal years, the unemployment rate has remained at the range of 5.9%-6.1%. The economic growth is not obvious for employment. It is reported that the labor market in Pakistan has an annual increase of 1.3 million in employment. The employment problem, especially the employment of young people under the age of 35, has not been solved well, causing social dissatisfaction.
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The capital market entered a consolidation phase
The Pakistani securities market was once called “one of the best performing emerging markets”. It was officially included in the MSCI Frontier Market Index in May 2017. The Pakistani stock market benchmark index KSE-100 also hit a record high of 52,636 points in the month. In the 2017-18 fiscal year, the Pakistani stock market reflected the rise in uncertainty.
The setting of major economic targets
According to the 2018-19 fiscal year budget formulated by the previous Pakistani government, the main economic goals for the new fiscal year include: real GDP growth rate of 6.2%, inflation rate below 6%, tax revenue to GDP ratio of 13.8%, and the rate of the budget deficit is below 4.9%, the net public debt to GDP ratio is below 63.2%, and the foreign exchange reserves are growing to $150. The former finance minister said that the core of the macroeconomic policy of the new fiscal year should be to address the imbalance of international payments while protecting economic growth. The government will further reduce its fiscal deficit and expand the tax base, reduces the loss of state-owned enterprises, attracts foreign investment, promotes exports and maintains a prudent monetary policy.
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According to Sofreight.com, the new Pakistani government with Imran Khan as Prime Minister recently announced that Pakistan will increase import tariffs on 5,000 commodities and cut infrastructure spending to balance its budget.
More than 5,000 “luxury goods” import tariffs increased, more than 900 kinds of commodity supervision taxes increased.
On September 18th, Pakistan’s former finance minister Assad Omar announced a series of measures to cut the state budget and the current account deficit, warning Pakistan that it is “on the edge of the crisis.”
In his revised budget presentation to the House of Commons, Asad Umar stressed that the Pakistan Tehreek-e-Insaf (PTI) government has two priorities: protecting the poor and strengthening the export sector. Pakistan’s foreign exchange reserves have been exhausted to only two months of import protection, raising concerns about the fall in the exchange rate of the rupee against the US dollar and pointing out that they will bring suffering to ordinary consumers.
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To stabilize the Pakistani rupee and reduce the current account deficit, Omar announced:
* Customs will be imposed on 5,000 items, including luxury goods such as high-powered cars, more expensive mobile phones, jewelry and accessories;
* will increase the regulatory tax on more than 900 imported goods;
* About 130-150 unnecessary items, such as used cars, will be completely banned from import.
* Expenditures for development projects such as roads and water systems will be reduced by nearly Rs. 250 billion to Rs 725 crore.