Lurking trade deficit eclipses 6% growth
As the country’s economy showed a broad-based growth of six per cent during the outgoing financial year, Finance Minister Miftah Ismail on Thursday berated minimal exports and tax revenues – which remained less than one-tenth of the size of the economy – as not worthy of a nuclear-tipped nation.
It was an irony to see the coalition government’s team, headed by Finance Minister Miftah Ismail, launching the economic performance report card for the fiscal year 2021-22 – which was a mix of positive and negative indicators – of their bitter rival Imran Khan and at the same time trying to highlight ill-conceived policies of the previous regime.
The finance minister was flanked by Planning Minister Ahsan Iqbal, State Minister for Finance Ayesha Ghous Pasha, Power Minister Khurram Dastgir and Finance Secretary Hamid Yaqoob Sheikh.
The Economic Survey of Pakistan 2021-22 showed that the government of former prime minister Imran Khan achieved 6% growth against the target of 4.8%, in addition to showing better performance in exports and remittances.
However, it could not address structural imbalances in the economy that led to a record increase in public debt and the highest-ever imports. It also missed two key goals – reasonable increase in investment and savings.
The PTI government missed the average 8% inflation target that is now projected to reach nearly 12%, while the rupee traded at Rs189 to a dollar on the day Imran was ousted from power, becoming a key reason for inflationary prices in the country.
Ismail said that the country’s growth story remained the same – whenever the rate crosses 6%, current account deficit explodes.
The Economic Survey of Pakistan showed that on the back of imports and consumption, the economic growth rate accelerated to 6% during the last year of Imran’s government – the highest pace in four years that helped increase the size of the economy to $387 billion, besides jacking up per capita income.
The details showed that a massive surge in imports and consumption greased the economic growth rate, which has already triggered a serious external sector crisis. A similar pattern was also witnessed in 2018 when the country fell in the lap of the International Monetary Fund.
“The economy rebounded from the pandemic and maintained a V-shaped recovery by posting real GDP growth of 5.97% this year,” the finance minister said, but hastened to add that current account deficit slipped out of the hands of the government due to $76-77 billion imports in the fiscal year –the highest ever figure in Pakistan’s history.
“In the outgoing fiscal year, the exports were equal to 8% of the Gross Domestic Product and the Federal Board of Revenue’s tax-to-GDP was 8.6%, which is not worthy of a nuclear-armed nation,” Ismail said.
The result was the record surge in public debt which, by March this year, peaked to Rs44.4 trillion.
For fiscal year 2022-23, the government may unveil a Rs9.45 trillion budget that will have Rs3.95 trillion allocation for debt servicing, underscoring the price that the country is paying due to a low tax-to-GDP ratio.
Ismail said that the PML-N government had left behind an 11.1% tax-to-GDP ratio that the PTI government could not even match in four years.
“The balance of payment situation of the country particularly stood out with trade deficit, jumping 48% and the current account deficit spiralling out of control last year,” Ismail said.
The PTI government’s achievement to have 6% economic growth rate was dampened in the face of glaring macroeconomic imbalances.
The current account deficit is now projected at 4.1% of GDP or $16 billion for the outgoing fiscal year – many times more than the target of 0.7% or $2.3 billion – a big failure of the PTI government that is now costing the country dearly.
The 6% growth rate at the end of the PTI government was the highest in four years. Last time, the country attained 6.1% growth rate in 2017-18 – the last year of the PML-N rule – which had also been driven by consumption and imports and took the country back to the IMF.
During 2017-2018 and 2021-2022, Pakistan’s growth was largely financed through foreign savings, which is highly unsustainable.
The agriculture sector provisionally estimated to grow by 4.4%, nearly 1% better than the previous year.
On the back of the Large-Scale Manufacturing sector, the industrial sector grew at the rate of 7.2%, lower than the previous fiscal year. The growth in the services sector was slightly better than the previous fiscal year, standing at 6.2%. The mining sector witnessed contraction.
Ismail underlined the need for “sustainable economic growth” in the upcoming financial year, promising that his government would focus on poor and neglected segments instead of the rich.
To a question about Prime Minister Shehbaz Sharif’s desire to also have a 6% economic growth rate next year that will be unsustainable, Planning Minister Ahsan Iqbal said that “the prime minister is very ambitious to take Pakistan on fast track of economic growth” but there will be trade-off between growth and fiscal consolidation.
Former prime minister Imran Khan also issued a statement on the performance of his government.
He stated that the Economic Survey Report 2021-22 corroborated the PTI’s claims that Pakistan was on the trajectory of progress and the economy was thriving.
Imran said that the data of the survey clearly indicated that Pakistan was prospering on the economic front during the tenure of his government.
He said that the PTI government put the country on a path of economic progress and prosperity during the last two years and the country was heading towards a positive trajectory.
About the foreign direct investments, the finance minister said the investments dropped to $1.25 billion in the outgoing financial year against the PML-N’s last year’s $2.2 billion.
Ismail said that the foreign exchange reserves of Pakistan would improve by $2.4 billion to over $12 billion by early next week once China clears the loan payments.
The reserves have slipped to just $9.2 billion. He said, “Imran missed a once-in-a-lifetime opportunity available to him after global markets crashed due to the Covid pandemic and as a result the economy is now sinking.”
But he claimed that the coalition government has put the economy back on track and the threat of default has been averted.
Power Minister Khurram Dastgir spoke about power production during the PML-N rule from 2013-18, saying that the PTI had failed to add anything to the national grid during its rule. “Had the PTI government set up the required 8,000MW projects, there would be no power outages today,” he added.
The finance minister said the economic growth through upgrading the agriculture sector would be sustainable and that the government would also increase the salaries of the state employees to offset the impact of inflation.
He claimed that the government would not make any “unnecessary expenditures” and that it was available to be held accountable for budget expenditure.
“We will definitely announce an increase in salaries of the employees amid a record increase in inflation,” he said, adding that the petrol quota of government high-ups had been slashed as well.
The size of the economy reached nearly Rs67 trillion in 2021-22 –about Rs3 trillion higher than the estimates, which will also help the government get additional fiscal spending space. In dollar terms, the volume of the economy in 2021-22 stood at $387 billion, according to the survey.
Similarly, per capita income that had been estimated at $1,676 in the last fiscal year increased to $1,798 – a surge of $122 or 7% per person. In rupee terms, per capita income jumped from Rs268,223 in 2020-21 to Rs314,353 in 2021-22.