GROWTH PROSPECT 2011/12
TARIQ AHMED SAEEDI
Mar 26 - Apr 1, 2012
With the security problems and energy crisis suffocating the economic activities in Pakistan, growth is feared to be in the lurch for this fiscal 2011/12. Both local and international analysts, more or less, are on the same page in this regard. According to the World Bank, Pakistan is expected to post 3.9 per cent growth in 2011/12 and 4.2 per cent in next fiscal 2012/13.
"Economic activity in Pakistan, representing 15 per cent of gross domestic product (GDP) of south Asia, continues to markedly lag outcomes elsewhere in the region, reflecting worsening security conditions, greater political uncertainty, and a breakdown in policy implementation." it says in its report titled 'global economic prospects-January 2012 uncertainties and vulnerabilities'.
The economic outcomes were appallingly disappointing in last fiscal 2010/11 when growth fell to 2.4 per cent from 4.1 per cent in the preceding fiscal year.
Last fiscal year saw the economy battered from various fronts. While floods destroyed a larger part of the country, fiscal indiscipline was exacerbated on government's inflationary borrowing from banking system and slow external flows especially donations committed for relief of flood victims and rehabilitation of internally displaced persons, according to the economic survey. Energy crisis continues to hamstring whatever attempt the crippled economy is making to come on the normal track.
SBP'S GROWTH PROJECTION
The government of Pakistan set growth target at 4.2 per cent in the federal budget 2011/12. However, state bank of Pakistan (SBP) put it around three to four per cent.
Until the first half of current fiscal year, commodity-producing sector (agriculture and industry) exhibited improvement in performance.
Large-scale manufacturing (LSM) sector showed 0.8 per cent growth in July-Dec fiscal 2012, though it declined constantly 0.8 and two per cents in the similar periods of FY10 and FY11, respectively, according to the statistics of SBP. Half-year growth was, notably, below than the target of two per cent set earlier. However, quarterly performance was not good. Energy crisis, particularly interruptions in gas supply to industries, caused decrease in LSM performance to one per cent in the second quarter.
DRAWING SUPPORT FROM AGRICULTURE SECTOR
Wheat acreage of this rabi season was lower than 8.9 million of last year. Target set for kharif crops are, however, expected to be hit despite the flood-related losses. Floods also augmented soil moist leading to higher than expected outputs.
According to the SBP's report, massive destruction of cotton crop in Sindh was compensated with increased outputs in Punjab. Improved performance of kharif crops including rice, sugarcane, and cotton brightened the likelihood of strong support to the economy from agriculture in December. Estimated cotton production was12.6 million bales up one million from output last year. Similarly, rice production was estimated at staggering 6.2 to 7.2 million tonnes as against 4.8 million tonnes a year ago. Sugarcane crop size was calculated at 56.2 to 69.9 million tonnes.
The performance of agriculture sector showed resilience to the extent that year on year consumer price inflation slid to 9.7 per cent in December 2012, first time since October 2009, owing to surplus of cash crops, said the report. Nevertheless, the declining trend can be reversed on rupee value depreciation, frequent rises in prices of petroleum products, unrestrained government borrowing, it added. The central bank foresees inflation in between 11 and 12 per cent this fiscal.
Budgetary target was to contain fiscal deficit to four per cent of GDP in 2011/12. Later the target was revised to 4.7 per cent. Given the slow realization of non-tax revenues from coalition support fund and hysterical government expenditures, it would be very difficult for the government to achieve even this target. The government's appetite for public money in banks for deficit financing seemed insatiable since until first half deficit financing scaled up to Rs365 billion that was much higher than Rs308 billion in the similar period a year ago.
Tax revenue showed surprising increase in July-Dec lending a support to deficit containment. Federal board of revenue recorded 27.1 per cent growth in tax collection in first half compared with 13.7 per cent and 5.1 per cent in corresponding periods of FY11 and FY10, respectively. Critics said the increase was mainly due to regressive taxes such as petroleum levy, sales tax, etc. It appears that tax machinery is grinding people to churn out money.
Foreign reserve position is critically dependent on export sector's performance. At present, prices of nonoil commodities are moving on the downward trajectory with demand in developed economies muted or relatively weakening. The development has already reflected in comparatively listless rise in exports from Pakistan during the first six months of the current fiscal year. The exports grew 3.6 per cent in a wide contrast to 18.7 per cent in the previous year. In the throes of energy shortages and disturbed law and order, Pakistan's economy has to undergo the corrections in the global economy.
Growth in emerging and developing economies have lost pace more than projected due to perhaps macroeconomic policy tightening, according to the latest World Economic Outlook (WEO) released by the International Monetary Fund (IMF). It slashed growth forecast by half percentage point compared with the projection made in September 2011 WEO.
Most of the oil importing countries would continue to sustain muted growth due to 'geopolitical risks to oil prices'. The report projects only a slight decline in oil price in 2012. In contrast, prices of nonoil commodities travel downward due to supply sides recovery. Such prices will slide by 14 per cent.
"Overall consumer prices in these economies are projected to decelerate, with inflation around 61/4 per cent during 2012, down from over 71/4 per cent in 2011,î says the report. "In emerging and developing economies, the near-term focus should be on responding to moderating domestic demand and slowing external demand from advanced economies, while dealing with volatile external flows."