Pakistan's economy sharply slowed to just 0.92% during the first quarter of this fiscal year due to poor output from agriculture and industrial sectors, as people struggled to cope with the high cost of doing business and abrupt economic policy shifts.
The 111th meeting of the National Accounts Committee (NAC), responsible for approving the nation's economic output, savings, and investment rates, was held on Monday. Planning and Development Secretary Awais Manzur Sumra chaired the meeting.
The NAC approved the provisional gross domestic product (GDP) growth rate of 0.92% for July-September quarter of this fiscal year. The GDP is the measure to gauge the output of goods and services in a relative period.
This growth was far slower than the 2.3% achieved in the same period last fiscal year, according to the NAC's working paper. Prime Minister Shehbaz Sharif's government has set an ambitious annual growth target of 3.6% for the 2024-25 fiscal year.
In the previous quarter (April-June), economic growth stood at 3.3%. The 0.92% growth rate is also significantly below the population growth rate, highlighting the economy's inability to generate sufficient jobs to address the growing youth bulge.
However, the government does not have a fiscal space to stimulate growth and any attempt to grow by debt funding would again cause serious fiscal and external sector crises.
The government imposed a record Rs1.4 trillion in taxes in the budget and increased electricity prices by up to 51% in July, which significantly dented economic growth prospects for the industrial sector. The reduction in the interest rates is now expected to boost the industrial sector.
Agriculture sector
According to the NAC, the agricultural sector posted a growth of just 1.1% in the first quarter of the current fiscal year, marking a sharp slowdown compared with 8.1% growth achieved in the first quarter of the last fiscal year.
The premature and unplanned implementation of the international Monetary Fund (IMF) condition to phase out agriculture support prices dented the output of the sector. The IMF had asked to phase out the mechanism by June 2026, but the provincial and the federal governments have already withdrawn the support.
According to the NAC, production of important crops declined 11.2% in the first quarter due to reduction in the yield of cotton, maize, rice, and sugarcane. Major driver for a -11.2% growth in the important crops was rice, which showed -1.2% growth as compared to the last year, according to the NAC.
The production of cotton has also decreased by 29.6% as compared to the last year. Similarly production of sugarcane has declined by 2.2% as compared to last year. Area of maize has decreased by 15.6% as compared to last year. Forestry and Fishing industries have witnessed modest growth of 0.8%.
Industrial sector
The industrial sector, which is the major source of employment generation and taxation, contracted over 1% in the first quarter of this fiscal year. In the first quarter of last year, the industry shrank by 4.43%.
According to the NAC, the mining and quarrying industry contracted 6.5% on the basis of low quarterly production of coal that was -12.4%, gas by -6.7% and crude oil by -19.8%.
According to the NAC, large-scale manufacturing also showed a negative growth of 0.82% in the first quarter of this fiscal year. A modest growth of 0.58% has been reported in the electricity, gas and water supply industry on the basis of quarterly data reported by the sources.
But the construction sector shrank by 14.9% and the cement production declined by 16.1% during the first quarter of this fiscal as compared to the same quarter last year.
The central bank has cut the interest rates to 13% due to a fall in the inflation rate but there is still room to further reduce the rates by at least 3% to 4%.
Services
The Services sector has shown a growth of 1.43% in the first quarter – which is the highest growth by any of the three sectors. But the pace was lower than the 2.2% in the first quarter of last year. Wholesale and retail trade has witnessed a growth of just 0.5% because of the growth in imports and agriculture.
The transport and storage industry declined marginally as compared to 2.7% growth during the same period last year, because of the decrease in the output of the Pakistan National Shipping Corporation (PNSC) and the Pakistan International Airline (PIA).
Information and communication is one of those industries, which have witnessed a growth of 5.1% due to better output of the mobile companies. The Finance and Insurance industry has also shown a growth of 1.1%.
Last fiscal growth
The government has also marginally adjusted the overall economic growth number of 2.52% of the last fiscal year 2023-24. But the sectoral adjustments were significant. The agriculture sector growth was downward adjusted at 6.2% compared to 6.4% reported earlier.
The industrial contraction has moved from -1.1% to -1.7%. Services sector has improved to 2.4% against 2.2% reported previously.
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