In its fourth year, the Pakistan Peoples Party (PPP)-led government managed to miss all its economic targets, except containing inflation.
The Economic Survey of Pakistan, to be unveiled by Finance Minister Dr Abdul Hafeez Shaikh on Thursday (today), states that growth in the outgoing fiscal 2011-12 clocked in at 3.7%, markedly below the target of 4.2%.
The biggest admission of failure in the budget paper is that half of the industrial capacity remains idle, primarily due to the energy crisis. Growth next year can therefore be achieved without any new investment, simply by tapping this idle capacity.
The finance minister, however, will try to mitigate the impact of domestic policy failures and cite global woes for most domestic problems, and also place some responsibility on nature, or the ‘Great Floods’.
“The progress on resolution of war on terror could have offered support to economic growth in 2011-2, but at the beginning of the current fiscal, natural calamity struck,” the paper states.
According to the document, this year’s growth target of 4.2% was based upon the underlying assumptions of “global recovery, better fiscal management, improved energy availability and a conducive business environment.”
According to the paper, “The 3.7% growth was achieved due to bumper crops in Punjab, improved value-addition in large scale manufacturing and improvement in construction and financial sectors.” The targets for agriculture, industrial and services sectors have been missed. “The industrial sector remained confronted with gas and electricity outages.”
Meanwhile, national savings fell to 10.8%, against a target of 13.2%, and investment fell to 12.5%.
The government’s economic managers confessed that they have failed to manage subsidies, resulting into a higher budget deficit. The paper states that excluding Rs391 billion circular debt payments, budget deficit has crossed 4.3% of gross domestic product (GDP) and the revised target will be difficult to achieve.
The paper states that the central bank reduced its policy rate by 200 basis points, from 14% to 12%, in order to keep real interest rates from suffocating growth. Due to the surge in government borrowings, money supply grew by 8.7% during the first 10 months of the outgoing fiscal.
Meanwhile, net foreign assets of the banking sector reduced by Rs261 billion in the first 10 months, as opposed to an increase of Rs174 billion, last year. The contraction was mainly due to lower external inflows and higher current account deficit – the gap between foreign receipts and payments, the paper states.
It adds that pressure on the rupee is likely to continue due to uncertain foreign inflows, and substantial government borrowing to finance the budget deficit.
Balance of payments
Against the annual target of $1.4 billion, or 0.6% of GDP, current account deficit widened to $3 billion in the first nine months of the outgoing fiscal, according to the document. The entire contribution to this surge came from trade imbalance, which stood at $12.8 billion in nine months, the paper adds.
“Exports could not sustain the pressure of falling global demand and domestic supply side constraints,” it states.
Total public debt surged to Rs12.1 trillion, or 58.2% of GDP, a net increase of Rs1.3 trillion in just the first months. Foreign investment plunged by 65% in ten months.
Inflation in the first 10 months averaged at 10.8%, against an annual target of 12%. Despite showing some improvement, inflation remains in double-digits for the consecutive fifth year.
For the upcoming fiscal, growth outlook depends on industrial revival, which, in turn, hinges on energy sector reforms, according to the Annual Plan 2012-3.
Moreover, fiscal management remains a challenge and is critical for keeping inflation in single digits. External sector weaknesses and the global environment are posing a threat to the external account, the paper forewarns.
Published in The Express Tribune, May 31st, 2012.
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If even a single person was doing their job with even 5% integrity then we wouldn't be in this state.
If all our food was not being hoarded or exported to Afghanistan, food prices would not be in line with US food prices. And no one would be dying of hunger. The hoarders, the greedy and the black marketers are to blame for this inflation and rise in food prices.
To do that, one actually needs Solar cells.
Really they must be out by september 2012
Where did the Express Tribune get hold of the Economic Survey before its official release? It is unfortunate that public offices do not properly guard information. But reporters should also practice better ethics.
Please note that the reason for reduced inflation is the change in the base year.
Dr. Shaikh is a very competent economist who has the solutions to many of the nation's major problems. Unfortunately, political patronage and populism trumps good public policy in Pakistan under the current PPP-led coalition govt.
Total public debt surged to Rs12.1 trillion, or 58.2% of GDP, a net increase of Rs1.3 trillion in just the first months. Foreign investment plunged by 65% in ten months!!!
How many more years PPP needs to take the blame of their incompetence. Its been 4 years and still they put all the blame on previous government. Probably 4 years are not enough to deliver. USA needs to consider this as well.
It's a great informative summary of Economic survey. Attributing failure to external factor is not new for our government. Debt amounting to trillions = 58% of GDP , isnt it what you call selling off the whole nation?
wake up wake up!!!!!!!
"Growth next year can therefore be achieved without any new investment, simply by tapping this idle capacity." +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
And power generation of 7500 MW will happen thru free solar cells?
Pretty much as expected. Inflation too is not contained as Sheikh Puttar claims. They keep changing the base year index so we no longer know what really is the rate of inflation, except that now the middle-class cannot afford to eat meat and enjoy a bite out in a restaurant. Gone are those days, what to say of paying for electricity.
This govt's a joke!!! Get them out
Road path for a failed state.
Very informative summary of Economic survey. Attributing failures to external factors is not something new for our government offiacials. Public debt amounting to trillions = 58% of GDP, Isnt it what you call selling off the nation!
Congratulations, it is a great achievement for the whole nation. Jiye PPP.