Govt sets growth target at 4% for FY20

Projects inflation at 8.5%, pointing towards unimpressive economic outlook

ISLAMABAD: The government has set the economic growth target for its second year in power at a modest 4% and projected average inflation of 8.5%, reflecting an unimpressive economic outlook due to the International Monetary Fund (IMF) loan programme.

The per capita income in dollar terms is also expected to remain lower in next fiscal year 2019-20 at around $1,500 due to further currency depreciation compared to the outgoing fiscal year.

The low economic growth target coupled with higher inflation will make it difficult for the government of Prime Minister Imran Khan to implement its plan of creating 10 million jobs and building five million housing units.

The government has also set an ambitious current account deficit target at 3% of the total national output or $8.2 billion for the next fiscal year, starting July 1. The next fiscal year will coincide with the Pakistan Tehreek-e-Insaf’s (PTI) second year in power.

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“The economic growth target for the next fiscal year is 4% and inflation target is 8.5%,” said Federal Minister for Planning and Development Makhdoom Khusro Bakhtiar, after a meeting of the Annual Plan Coordination Committee (APCC). The APCC approved on Thursday the macroeconomic framework for fiscal year 2019-20. The plan will now be tabled before the National Economic Council (NEC) - the constitutional body responsible for macroeconomic planning - for its formal endorsement.

PM Imran will chair the NEC meeting while the APCC huddle is headed by the planning minister. The 4% target is slightly higher than the outgoing fiscal year’s growth rate of 3.3%. The agriculture sector, which grew 0.8% in the outgoing fiscal year, is projected to grow 3.5% in the next fiscal year.

The government does not expect any major improvement in the industrial sector and it has set 2.3% growth target for the sector which contributes more than half to the total tax revenues. The manufacturing sector is expected to grow 2.6% in the next fiscal year as against negative 0.3% growth this year.

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The large-scale manufacturing sector is targeted to grow at a rate of only 1.5% as against negative 2% growth in the outgoing fiscal year.

The services sector is expected to grow at a pace of 4.8%, which is almost similar to the outgoing fiscal year’s level on the back of growth in finance and insurance, other private sector and general government services.

Average inflation rate for the next fiscal year is projected at 8.5% due to anticipated heavy taxation and increase in electricity and gas prices under the IMF programme.

The government’s macroeconomic targets seem optimistic as compared to IMF projections which have put economic growth at around 3% for the next fiscal year.



The balance of payments framework, approved by the APCC, also appears to be ambitious as it has been built on expectations of reversal of the ongoing depressing trend in exports. In first 10 months of the outgoing fiscal year, exports turned slightly negative and imports contracted nearly 8%. This resulted in a trade deficit of $26.3 billion, which was 12.8% lower than the previous fiscal year.

Macroeconomic targets for the next fiscal year show that exports will grow at a pace of 6% and the export target has been set at nearly $26 billion. However, this is lower than the claim made by the adviser to prime minister on commerce. Imports have been projected to stay slightly above $54 billion, higher by nearly 1% over the revised projections for the outgoing fiscal year. As a result, the government expects to keep the trade deficit restricted at $28.2 billion in the new fiscal year.

Owing to fiscal consolidation, the government does not expect any major improvement in the current low investment. It has set the investment-to-GDP ratio at 15.8%, marginally higher than the outgoing fiscal year’s 15.4%. Fixed investment will also not see any major change and the government projects it will be around 14.2% at the end of the next fiscal year. Public investment has been projected to grow slightly to 4.1% of GDP in fiscal year 2019-20.

Private investment may also marginally improve to 10.1% of GDP from this year’s level of 9.8%. National savings rate is set at 12.8% for fiscal year 2019-20.

 

 

Published in The Express Tribune, May 24^th, 2019.

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