Pakistan's economy grew by only 1.7% during the second quarter of the current fiscal year, driven mainly by the livestock and services sectors, which benefited from a lower inflation rate. However, economic conditions remained tight due to limited room for any manoeuvring.
The productive sectorsagriculture and industryfaced severe challenges, including high interest rates, rising energy costs, and adverse weather patterns. Sugar production declined by 12.6% this year, raising concerns about potential supply shortages later in the year. Despite this, the government of Prime Minister Shehbaz Sharif approved the export of 796,000 metric tonnes of sugar in the past year.
The 112th meeting of the National Accounts Committee (NAC), responsible for approving economic output, savings, and investment rates, was held on Wednesday, chaired by Planning and Development Secretary Awais Manzur Sumra. The NAC approved a provisional gross domestic product (GDP) growth rate of 1.73% for the October-December quarter, slightly below the 1.8% recorded in the same period last fiscal year. The government's ambitious annual growth target of 3.6% for the 2024-25 fiscal year now appears unlikely to be met.
The NAC also revised the previous quarter's (July-September) economic growth upward to 1.34% from 0.9%. The average growth rate for the first half of the fiscal year stood at approximately 1.5%, far below the population growth rate, highlighting the economy's inability to generate sufficient jobs to address the expanding youth labour force.
The government's record tax imposition of Rs1.4 trillion and electricity price hikes of up to 51% in July significantly hurt industrial sector growth. While a reduction in interest rates is expected to provide some relief, the State Bank of Pakistan (SBP) missed an opportunity this month to lower interest rates below 10% despite a significant decline in inflation to 1.5%. However, fiscal constraints leave little room for any economic stimulus.
Meanwhile, the Power Division is struggling to meet the prime minister's directive to cut electricity prices by Rs6 per unit.
Agriculture sector
According to the NAC, the agricultural sector grew by only 1.1% in the second quarter, a sharp decline from the 5.8% growth recorded in the same period last fiscal year. The sector suffered due to the abrupt withdrawal of support price mechanisms and drought-like weather conditions, while input costs remained high.
Key crop production declined by 7.7% in the second quarter, with cotton output falling by nearly 31% to 7.1 million bales, a reduction of 3.1 million bales. Rice production declined by 1.4% to 9.7 million tonnes, maize output fell by 15.4%, and sugarcane production decreased by 2.3% to 85.6 million tonnes. Minor crop output showed minimal growth of 0.7%.
Cotton ginning output contracted by 20%, but the livestock sector expanded by 6.5%, benefiting from a lower cost of intermediate consumption, including dry and green fodder. Forestry declined, while fishing posted a marginal increase of 0.8%.
Industrial sector
The industrial sector, a key source of employment and taxation, remained under pressure, contracting by 0.2% in the second quarter.
According to the NAC, mining and quarrying shrank by 3.3% due to lower production of gas, oil, and coal. Large-scale manufacturing declined by 2.9%, primarily due to a 12.6% drop in sugar production, a 1.8% reduction in cement output, and an 18% decrease in iron and steel production.
Electricity, gas, and water supply grew by 7.7%, largely due to increased subsidies. However, the construction sector contracted by 7.2% due to reduced cement and steel production.
Despite room for interest rate cuts, the central bank maintained rates at 12%, limiting industries' ability to borrow and expand operations.
Services sector
The services sector recorded a growth of 2.6% in the second quarter, making it the best-performing sector of the economy. This was also higher than the 1.2% growth recorded in the same period last year. The primary reason for this improvement was the decline in inflation, which fell from 29% to 6.3% in the second quarter.
Wholesale and retail trade contracted by 1.1% due to reduced large-scale manufacturing output and lower imports. Transport and storage grew by 1.1%, supported by increased output in road, air, and water transport.
Information and communication services expanded by 8.5%, benefiting from improved performance by mobile companies and lower inflation.
The finance and insurance sector posted a 10.2% increase, driven by a significant reduction in deflators and interest rates.
Real estate services expanded by 4.1%, public administration and social security by 9.1%, and education services by 4.8%, reflecting modest improvements in these areas.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ