Approval of economic growth plan delayed

Agenda item dropped after macroeconomic strategy draft found unsatisfactory

ISLAMABAD:

The approval of economic growth strategy has been delayed as the government has yet to finalise a guiding policy document while macroeconomic policies are largely driven by global lenders.

Approval of macroeconomic growth strategy was dropped from the agenda item of the Annual Plan Coordination Committee (APCC) meeting which met a few days ago, according to sources in the Ministry of Planning and Development. They said Planning Minister Asad Umar dropped the agenda after he found the draft strategy unsatisfactory.

It may also partially release the poverty estimates in the upcoming Economic Survey of Pakistan and could withhold provincial level poverty estimates, said the sources.

The government does not have a plan to take the growth strategy for the approval of the National Economic Council (NEC) that is going to meet on Monday to approve next year’s macroeconomic growth targets and the development budget. Prime Minister Imran Khan chairs the NEC meeting and the four provincial chief ministers are also its members.

“The consultation with the provinces on the new growth strategy has not been completed and we will now try to complete the process in the next three months,” said Planning Ministry spokesman Zafarul Hasan Almas.

Zafar said that the provinces are now important stakeholders in the national planning and without their formal consent the growth strategy cannot be finalised.

While responding to a question, Zafar said that provincial level poverty estimates for fiscal year 2018-19 may not be released due to incomplete consultation with the provinces. He said that the overall poverty rate and the break-up of rural and urban poverty level might be given in the economic survey.

The latest poverty estimates show declining trends in Pakistan as the survey for 2018-19 showed that poverty had declined by about 3% from 24.3% in 2015-16 to 21.5% in 2018-19. The numbers suggest an increase in poverty in Khyber-Pakhtunkhwa while it reduced in other three provinces, said the sources.

Read more: Economy growing but concerns remain

Pakistan’s 11th five-year economic plan had ended in June 2018 and the ruling party spent the first two years in deciding whether it should give a 12th five-year macroeconomic plan or a three-year economic growth strategy.

The only guiding document is the 39-month Extended Fund Facility (EFF) of the International Monetary Fund (IMF) that largely revolves around quarterly fiscal and monetary targets. In the absence of the five-year plan or growth strategy, the Ministry of Finance, Ministry of Planning and Development and State Bank of Pakistan often give different sets of economic projections.

For instance, for the next fiscal year, the finance ministry wanted over 5% economic growth target but the Planning Commission got approval of the 4.8% target from the APCC.

Pakistan Institute of Development Economics (PIDE) has said that the country needs to grow at 7-9% for 30 years to reduce public debt and create jobs by bringing a radical shift in functioning of the state and redefining the government role as facilitator.

The 7.11% economic growth rate is required only for full employment and in order to bring the debt down, the economy has to grow at a rate that is “greater than 8%”.

The government’s this year 3.94% economic growth number has also become controversial.

The moment three economic ministers were declaring a victory on Thursday, the State Bank of Pakistan released its second quarter economic report, cautioning the government about upcoming three major challenges and also maintaining its 3% growth forecast.

“It is likely that real GDP growth will exceed the target of 2.1% and the SBP has revised its real GDP forecast for FY21 upwards, to 2 to 3%, from the earlier range of 1.5% to 2% provided in the first quarterly Report of FY21,” according to the second quarter SBP report.

In a footnote, the SBP explained that the second quarter report had been approved by the SBP board on April 30 and it gave such projections.

The central bank has also cautioned the government about looming dangers of high inflation, insufficient revenues to finance debt and mounting pressure on imports and external accounts.

“Despite improvements in the overall macroeconomic indicators, a few trends will need to be monitored,” said the SBP.

It said that the role of supply side challenges across multiple agriculture commodities, especially food items, has become more prominent in driving the recent inflationary outcomes. The central bank said that there was a need to implement effective supply management and early warning systems, to ensure the availability of accurate and timely data on stocks of key commodities, and to monitor prices at the retail level.

Second, debt servicing continues to be a challenge, as revenue generation in the country is currently insufficient to finance the bulk of the mark-up payments, according to the central bank. During H1-FY21, nearly 23% of the interest payments was financed via the accumulated primary surplus; rest was financed via additional debt accumulation, it added.

The “import pressures are building up, in the wake of the pickup in economic activity and rising global commodity prices”, said the SBP.