No surprise: Pakistan misses growth target, again says SBP
Annual report warns of structural problems in energy sector, public sector enterprises and fiscal mechanism.
Annual report stressed on the need for energy sector reforms, and pointed out that subsidies, especially for the power sector, increased by more than three times in FY12. DESIGN: FAIZAN DAWOOD
KARACHI:
Pakistan’s gross domestic product (GDP) jumped to 3.7% in 2012, up from 3% in the preceding year, but still missed the 4.2% growth target set by the economic managers of the country, according to the State Bank of Pakistan’s (SBP) annual report for 2011-12 released on Wednesday.
More importantly, the SBP forecasts that growth in the current year will remain about the same. “The economy will grow at about the same rate in fiscal year 2013 (FY13) as it did last year (FY12). We are confident that milder flooding this year and the underlying factors that allowed for 3.7% growth in FY12 will largely remain in play,” the report said.
The report warned that structural problems in the energy sector, public sector enterprises and the fiscal mechanism may not be tackled in the near-term. It stressed on the need for energy sector reforms, and pointed out that subsidies, especially for the power sector, increased by more than three times in FY12.
However, there are also silver linings of the dim picture painted by the SBP. It said that growth in FY12 was more broad-based compared to FY11, as it was evenly distributed across the agriculture, industry and the services sectors. The demand side was more insightful, as growth in FY12 was primarily driven by private consumption, it said; adding that stronger worker remittances, a vibrant informal economy, and higher fiscal spending supported growing consumption during the year.
While services continued to support the economy, the commodity producing sectors (agriculture and industry) posted an improvement over FY11. The growth in agriculture came from livestock and Kharif crops; however, minor crops witnessed a decline due to flooding in the first quarter of FY12.
Analysts, too, provided a mixed response to the performance of the economy in FY12. Some blamed the government’s poor economic policies, while some believed that 3.7% GDP growth is reasonable, considering the plethora of challenges faced by the economy.
Muzammil Aslam, managing director of Emerging Economics Research, said that the energy crisis is the biggest reason behind slow economic growth. He held electricity and gas shortages responsible for a 2% cut in the annual GDP growth of the country. “It is unfortunate that the government has failed miserably in handling the energy crisis, especially the circular debt issue,” he added.
“Pakistan’s manufacturing sector has hardly grown since 2008, owing to which overall GDP growth has remained low in recent years,” he observed.
However, he also laid blame on the central bank. “The SBP also shares equal responsibility with the government,” he said. “The central bank is not showing independence and continues to take the government’s dictations on different economic issues. This is also creating problems for the economy.”
Arif Habib Corp’s Head of Research Khurram Schehzad held a contrary opinion. “Considering the number of challenges our economy is facing, I think 3.7% growth is not bad at all,” Schehzad said. “It is true that we are not growing at our real potential, but it is still good that the economy is gradually growing stronger,” he added.
Commenting on the growth forecast for 2013, he said that Pakistan’s GDP would grow by 3.9%, better than the SBP’s forecast, according to his analysis.
“You should not expect something extraordinary from the economy because the country is in a transition. It is passing through taxing political and economic challenges on both the domestic and external fronts,” he added.
Published in The Express Tribune, January 31st, 2013.
Pakistan’s gross domestic product (GDP) jumped to 3.7% in 2012, up from 3% in the preceding year, but still missed the 4.2% growth target set by the economic managers of the country, according to the State Bank of Pakistan’s (SBP) annual report for 2011-12 released on Wednesday.
More importantly, the SBP forecasts that growth in the current year will remain about the same. “The economy will grow at about the same rate in fiscal year 2013 (FY13) as it did last year (FY12). We are confident that milder flooding this year and the underlying factors that allowed for 3.7% growth in FY12 will largely remain in play,” the report said.
The report warned that structural problems in the energy sector, public sector enterprises and the fiscal mechanism may not be tackled in the near-term. It stressed on the need for energy sector reforms, and pointed out that subsidies, especially for the power sector, increased by more than three times in FY12.
However, there are also silver linings of the dim picture painted by the SBP. It said that growth in FY12 was more broad-based compared to FY11, as it was evenly distributed across the agriculture, industry and the services sectors. The demand side was more insightful, as growth in FY12 was primarily driven by private consumption, it said; adding that stronger worker remittances, a vibrant informal economy, and higher fiscal spending supported growing consumption during the year.
While services continued to support the economy, the commodity producing sectors (agriculture and industry) posted an improvement over FY11. The growth in agriculture came from livestock and Kharif crops; however, minor crops witnessed a decline due to flooding in the first quarter of FY12.
Analysts, too, provided a mixed response to the performance of the economy in FY12. Some blamed the government’s poor economic policies, while some believed that 3.7% GDP growth is reasonable, considering the plethora of challenges faced by the economy.
Muzammil Aslam, managing director of Emerging Economics Research, said that the energy crisis is the biggest reason behind slow economic growth. He held electricity and gas shortages responsible for a 2% cut in the annual GDP growth of the country. “It is unfortunate that the government has failed miserably in handling the energy crisis, especially the circular debt issue,” he added.
“Pakistan’s manufacturing sector has hardly grown since 2008, owing to which overall GDP growth has remained low in recent years,” he observed.
However, he also laid blame on the central bank. “The SBP also shares equal responsibility with the government,” he said. “The central bank is not showing independence and continues to take the government’s dictations on different economic issues. This is also creating problems for the economy.”
Arif Habib Corp’s Head of Research Khurram Schehzad held a contrary opinion. “Considering the number of challenges our economy is facing, I think 3.7% growth is not bad at all,” Schehzad said. “It is true that we are not growing at our real potential, but it is still good that the economy is gradually growing stronger,” he added.
Commenting on the growth forecast for 2013, he said that Pakistan’s GDP would grow by 3.9%, better than the SBP’s forecast, according to his analysis.
“You should not expect something extraordinary from the economy because the country is in a transition. It is passing through taxing political and economic challenges on both the domestic and external fronts,” he added.
Published in The Express Tribune, January 31st, 2013.