The National Economic Council (NEC) on Monday approved a “realistic” economic growth target of 4.8% for the next fiscal year amid a challenge to strike a balance between economic stability and growth to contain increasing inflationary and imports pressures.
The 4.8% Gross Domestic Product growth rate for fiscal year 2021-22 that the NEC – the country’s constitutional economic decision-making body – approved was slightly lower than what Finance Minister Shaukat Tarin had sought.
Tarin wanted over 5% economic growth target but Planning Minister Asad Umar opined in the meeting that 4.8% target was realistic one that had been worked out by the Planning Commission in consultation with other stakeholders, a participant of the meeting told The Express Tribune.
The agriculture sector is targeted to grow 3.5%, industry 6.5% and services 4.7%. However, the NEC was informed that the economic growth target was subject to favourable weather conditions, vaccination drive to reach maximum population and easing of Covid-related restrictions before the end of first half of next fiscal year.
The Planning Commission said it was managing current account deficit, consistent economic policies and well-aligned monetary and fiscal policies.
The NEC was informed that a balanced monetary policy will be needed to support economic growth while remaining vigilant about macroeconomic stability and aggregate demand.
“The challenge would be to strike a balance between growth and stability in such a way that monetary policy tools provide much needed support to economic growth while containing inflationary pressure,” the NEC was told.
For the outgoing fiscal year, the government has approved provisional growth rate of 3.94%, although the central bank has so far distanced itself and gave 3% projection in its latest report released on last Thursday.
Sources said that Adviser to the Prime Minister on Institutional Reforms Dr Ishrat Husain opined in the NEC that adequate measures had not been taken to contain inflation and address issues of unemployment.
The exports are estimated to grow by only 5.3% to $26.8 billion in the next fiscal year, as the Planning Commission has assessed that “Pakistan’s exporters will be facing challenging domestic and external environment”.
The growth in imports will almost be double than exports in the next fiscal year, as the imports payments are projected over $55 billion.
As a result, Pakistan will book a minimum $28.4 billion trade deficit in the next fiscal year, according to the macroeconomic plan approved by the NEC.
For this year, the trade deficit had been projected at slightly over $19 billion, which has already exceeded the target by $5 billion till April.
“Import demand is likely to increase due to growing aggregate demand through higher project related imports because of upsized PSDP but robust growth in remittances is likely to partially offset some of its impact,” the Planning Commission said.
The current account deficit is projected to be at 0.7% of GDP in 2021-22 by the Planning Commission, which is half of what the finance ministry had estimated during talks with the IMF.
The NEC was informed that the economic landscape in the coming year is benign and warrants building upon the momentum of V-shape recovery of 2020-21.
The impulse of fiscal and monetary support of the government will continue to trigger growth performance in the economy.
The overall GDP growth is expected to further pick up in 2021-22 while recovery of industrial and services sectors will boost the growth prospects and agriculture will maintain its normal growth trajectory.
The NEC set the average inflation target 2021-22 at 8% on the basis of vibrancy in economic activity and high commodity prices currently prevalent in the international markets. This means the annual inflation will be around 10%.
“Inflation is expected to remain in single digit but inflationary pressures are likely to persist as global surge in prices is to stay for some time,” according to the NEC summary.
Agriculture sector is targeted to grow by 3.5% on the basis of expected contributions of important crops which is 2.2%, other crops 3.2%, cotton ginned 10%, livestock 3.7%, fisheries 5% and forestry 5%. However, the agriculture growth is mainly contingent upon revival of cotton on account of better certified seed and pesticides availability.
Moreover, consistent availability of water, certified seeds, fertilizers, pesticides and agriculture credit facilities will help to achieve the targeted growth.
The industrial sector is targeted to grow at 6.5% during 2021-22. Manufacturing sector is projected to grow by 6.2% based upon LSM growth of 6%, and small scale and household manufacturing at trended growth. Moreover, construction and electricity generation and gas distribution are targeted to grow by 8.3% and 10.7%, respectively.
Mining and Quarrying sector is projected to grow by 4.1%. Industry is expected to pick up pace in 2021-22 with the implementation of envisaged export promotion and industrial development measures.
The energy demand is expected to increase by 6% which will feed into electricity generation and gas distribution sub-sector growth.
Services sector is targeted to grow by 4.7% in 2021-22 which is still lower than its five-year pre-Covid annual average growth of 5.3%. This growth is supported by 4.6% growth in wholesale and retail trade, 4.7% in transport, storage and communication, 5.2% in finance and insurance, 4% in housing, 4.5% in general government services and 5% in other private services.
The expected revival in commodity producing sectors will complement the targeted growth in services sector.