Finance Minister Muhammad Aurangzeb on Monday set his sights on "economic turnaround" as he prepared to present the federal budget for 2025-26 on Tuesday (today).
He exuded confidence in beginning the upcoming fiscal year on a stronger footing, building on the economic recovery that began last year and gained momentum this year with IMF support – despite missed targets in key real sectors, including agriculture.
Launching the Economic Survey of Pakistan 2024-25, the finance minister also proposed a major revision to the National Finance Commission (NFC) resource-sharing formula. He called for reducing the dominant weightage of population – currently 82% – in favour of other indicators such as area, poverty, and revenue generation, which together carry a weightage of 18%, arguing that the existing formula incentivizes population growth at the expense of equity.
The survey showed that the government has managed to consolidate economic recovery by avoiding a "sugar rush" and stabilise the external sector, yet again, it could not meet the most critical targets necessary to give economic growth figures credibility and help increase investment.
The economic growth rate stays at 2.7%, which is a right way to go for sustainable growth in order to avoid boom-bust cycles, said the finance minister, while referring to historical patterns of achieving higher growth rates followed by collapse the next year.
However, the claimed growth rate is below the target of 3.6% and is also disputed by independent economists.
The finance minister further said that inflation has been "a fantastic story", which slowed down to 4.6% this year and is in the right direction.
The recovery that began last year has been consolidated this year and the next year will be the year of economic turnaround, said the minister.
He, however, struggled to defend the claimed 2.7% economic growth figure for the outgoing fiscal year and offered to set up a committee of experts to review the opposite point of view.
"The data has been provided by the government and we will stick to it," said the finance minister while responding to questions about discrepancies in the data used to work out the 2.7% economic growth number.
The minister said that he was open to review the numbers being highlighted to point out discrepancies. Data integrity is absolutely critical and there is always a room for improvement, said the finance minister and add that the government could constitute a steering committee having members from the private sector to review the data.
Independent statisticians and economists have challenged the government's claim that the economy grew by 2.7% in the outgoing fiscal year. To achieve the figure, the economy has to grow by 5.3% in the April-June period, with large scale manufacturing ought to be growing over 8%.
Throughout the fiscal year, the government had been stating that the electricity generation was on the decline, yet the economic survey showed a 39.3% increase in gross value addition in the electricity sector.
Likewise, the construction sector, which is also affected by the government's taxation policies and low demand, was shown as growing by 6.6%.
Also, all major crops saw a dip in their output. The output of wheat declined by 9%, rice (1.4%) and the cotton crop witnessed a decline of 31%.
Regarding queries about a low growth coupled with high poverty and unemployment, the finance minister said that the government would not get into a sugar rush and absolutely stay on course of the economic reforms agenda.
To another question, the minister said that there was a need to control the population growth, as the current rate of 2.6% was unsustainable. One of the measures to control population is "delinking population from the National Finance Commission", said the finance minister in a policy statement that will set the tone for the August NFC talks.
While commenting on the plight of the agriculture sector, the minister said that had the agriculture sector growth remained at the last year's level, the overall economic growth rate could have been close to 3.6%.
The government missed its investment-to-GDP target of 14.2%. It remained at 13.8% and that, too, by assuming the entire Rs1.1 trillion public sector development programme had be fully utilised.
The private sector investment target was missed by a wide margin and it was glued at 9.1% of GDP, despite efforts to bring investment from abroad under the Special Investment Facilitation Council umbrella.
The SIFC will play a critical role in bringing investment in the energy, information technology and mining sectors, which will be a game changer for the economy, said the finance minister.
The government met the inflation target of 12% and it remained below 5% in this fiscal year, marking its important achievement.
On the revenue side; however, the government missed the tax target by a huge margin of over Rs1 trillion.
The finance minister said that the FBR transformation plan will take two to three years to be fully implemented.
The minister said that there has been widening of the tax base, with both individual return filers and registered retailer numbers going up compared to the last year.
He said that the energy ministry has done a good job as it managed to show improved recoveries, but hasten to added that the overall losses of state-owned enterprises were hovering around Rs1 trillion that could be avoided.
To a question regarding measures to reduce expenses, Finance Secretary Imdad Ullah Bosal said that Pakistan has achieved fiscal consolidation under the IMF programme and added there is no more space available to reduce the expenditures further. For the next fiscal year, too, the maximum possible reduction in the expenditures has been proposed, said Bosal.
Our dilemma remains the twin deficit, but this year, current account will remain in surplus and the foreign exchange reserves have increased to $11.5 billion, said the finance minister.
He said that the Pakistan Remittances Initiative and the Roshan Digital Accounts should be appreciated for increasing inflows of foreign exchange.
He said that remittances are expected to hit $38 billion in the outgoing fiscal year while cumulative inflows under the digital accounts have increased to $10 billion.
The per capita income is now claimed to have increased to $1,824 and the size of the economy (in dollar terms) is $411 billion, according to the survey. On the basis of the latest figures of the national accounts aggregates for FY2024-25, the overall size of the economy stands at Rs114.7 trillion.
Agriculture sector
The survey showed that the output of important crops has decreased by 13.5% due to a decrease in production of wheat from 31.8 million metric tons to 29 million tons.
The claim of 29 million tons wheat production was far higher than the Ministry of Finance's own projections of around 26 million tons expected production this year.
The production of maize decreased 15.4% to 8.24 million tons, rice output fell 1.4% to 9.7 million tons and sugarcane output decreased 4% to 84.24 million tons. Cotton crops sustained a major hit with 31% dip in production. The cotton bales decreased from 10.22 to 7.1 million bales.
Despite reduction in the production of grams by 17%, other crops have posted a provisional growth of 4.8% due to double-digit growth in the production of potato, onion, mango and sesame.
While cotton, ginning & miscellaneous components have declined by 19%, livestock, forestry and fishing have posted provisional growth rates of 4.72%, 3.03% and 1.42%, respectively.
Industrial growth
The government has claimed that the "industry has shown a growth of 4.77%". Despite an increase in the production of coal (2.84%), the mining & quarrying industry contracted by 3.4% because of a decrease in the production of natural gas by 7.05%, crude oil output decreased by 14.7%.
The large scale manufacturing, has also witnessed a negative growth of 1.53%. "Electricity, gas and water supply industry has shown a positive growth of 28.9% primarily due to low base effect of FY2023-24, i.e., -19.86% as well increase in the output of Wapda & companies".
Construction industry increased by 6.61% due to increase in construction-related expenditures by the private sector and general government, it added.
The growth in the construction sector is based on the claim that the government will spend Rs1.1 trillion on development in this fiscal year, which is untrue.
Likewise, the electricity growth claim is based on the assumption that Rs1.2 trillion power subsidies will be utilized in this fiscal year.
Services Sector
The services sector has also shown a growth of 2.91% in 2024-25 with positive contributions from all the constituents. Wholesale and retail trade witnessed a modest growth of 0.14% because of a slower output growth in the agriculture and manufacturing sectors.
Transport and storage industry increased by 2.2% because of increase in the output of water, air and road transport. Information & Communication has grown by 6.5% due to an increase in output of computer programming and consultancy activities 24%. Slower rate of inflation and low base effect has resulted into positive growth rates in Finance & Insurance and Public Administration and Social Security industries at 3.22% and 9.92% respectively, it added,
Further, both Education and Human health and Social Work industries have posted positive growth of 4.43% and 3.71%, respectively.
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