Survey of the economy 2012-13
Most of it was expected; most telling was the assertion that energy shortage had wiped out 2% of the country's GDP.
Finance Minister Ishaq Dar unveils Economy Survey of Pakistan 2012-2013. PHOTO: MUHAMMAD JAVAID/EXPRESS
The Economic Survey 2012-13 released by finance minister Ishaq Dar on June 11 said much of what was expected, in that most of the macroeconomic targets set by the economy’s managers last year for the current fiscal year were not met. The most important of these, the rate of economic growth was 3.6 per cent, based on nine months’ data, and fell short of the target of 4 per cent set at the beginning of the fiscal year. However, most telling was the assertion by the minister that the acute energy shortage had “wiped out” a whopping two per cent from the country’s GDP. As a result, the country’s GDP per capita, in nominal terms (not purchasing power parity), stood at $1,368 by the end of 2012-13.
The Survey also noted that the ongoing war on militancy and extremism was taking a tangible toll on the economy and affecting the rate of GDP growth. As for the energy crisis, it noted that the circular debt had ballooned – the minister had earlier said that this figure was now half a trillion rupees – despite the fact that the government had been pumping cash into the economy in an attempt to reduce it. During his press conference releasing the survey, Mr Dar said that the government’s intention was to eliminate the debt in 60-70 days, which is an excellent and much-needed statement of intent provided that it is actually achieved. On that front, however, the minister was not clear, and did not elaborate just how the new government would reduce the circular debt without further worsening the budget deficit, and causing inflation. Clearly, resolving the energy crisis has to take top priority for the PML-N government in 2013-14 and it is good to see that this seems to be the case with the prime minister holding one of his first meetings after taking oath on this subject alone.
Looking at how the economy performed sector-wise, large scale manufacturing grew by 2.8 per cent, compared to 1.2 per cent during 2011-12, agriculture grew by 3.3 per cent compared to 3.5 per cent the previous year, while the services sector increased by 3.7 per cent compared to 5.3 per cent last fiscal. Agriculture remains the single biggest sector in terms of providing jobs in the economy with a share of 45 per cent of total employment and this means that this government as well will have to give it the due attention that it deserves. Of course, given that its major products, especially rice and cotton, are subject to the vagaries of the weather, there is only so much that government policy can achieve, but one step towards promoting this sector would be to look for non-traditional markets for export and for promoting products with greater value addition. The Survey also notes that livestock is a vital sub-sector of agriculture: its share of GDP is a massive 11.9 per cent and 55.44 per cent of the income generated in agriculture comes from livestock. One hopes that the PML-N government in particular will take further initiatives in this regard and promote the creation of new products, especially in the related dairy and meat-related sectors. Moving on to the services sector, 2012-13 saw only nominal increase in it, with its share in Pakistan’s GDP rising to 57.7 per cent from 56 per cent the previous year. This is almost three times the share of agriculture in the country’s GDP and points to a growing urbanization of the country. It also means that the government needs to focus on the provision of credit facilities to small and medium enterprises especially since much of services-related economic activity seems to be of this size. Given that commercial banks traditionally lend to larger companies and organizations, there is a growing recognition even in the banking industry that lending to entrepreneurs and small and medium enterprises is not necessarily such a bad business decision. As for manufacturing, it accounts for 13.2 per cent of GDP and employs 13.8 per cent of the labour force. In it, large-scale manufacturing saw the highest growth during 2012-13, increasing by a very healthy 9.32 per cent compared to minus 1.19 per cent during fiscal 2011-12. This is one sector that can do even better if the government is able to reduce chronic loadshedding, since much of it depends on factory production, a sub-sector that continues to be among the hardest hit by power shortages.
The new government has many stiff challenges. Apart from the energy problem, the other is of generating investment in the economy, a crucial driver of economic growth. The Survey notes that in the past five years, investment as a percentage of GDP has fallen quite sharply: from 19.21 per cent in 2007-8 to 14.22 per cent by 2012-13. There are several reasons for this, not least law and order, terrorism and declining confidence in the government of the day. This has also resulted in a sharp decline in foreign direct investment in recent years. One hopes that this will now change with a new dispensation in place. Of course, much of it will depend on the political will that is needed to deliver on election pledges, especially those that related to economic policymaking and management of the economy. That the PML-N has close to a two-thirds majority in parliament should help it bring about some of the much-needed changes that the previous government was unable to do. Other than the energy front, one issue relates to tax collection. Pakistan has one of the lowest tax-to-GDP ratios in the world and it should be instructive in this regard to recall that the last PML-N government made many a promise on the imposition of a sales tax but was unable to enact it after much of its voter base in the form of the trading and commercial community rebelled and forced the party to drop the policy intention altogether. The Survey notes that for the first 10 months of the current fiscal year, Rs 1505.2 billion was collected in tax with a target of Rs2,381 billion for the whole year, meaning that in the remaining two months over Rs775 billion was to be collected – a tall order. How the new government tackles this and other pressing issues highlighted is something that 2013-14 will now bear out for us.
Published in The Express Tribune, June 12th, 2013.
The Survey also noted that the ongoing war on militancy and extremism was taking a tangible toll on the economy and affecting the rate of GDP growth. As for the energy crisis, it noted that the circular debt had ballooned – the minister had earlier said that this figure was now half a trillion rupees – despite the fact that the government had been pumping cash into the economy in an attempt to reduce it. During his press conference releasing the survey, Mr Dar said that the government’s intention was to eliminate the debt in 60-70 days, which is an excellent and much-needed statement of intent provided that it is actually achieved. On that front, however, the minister was not clear, and did not elaborate just how the new government would reduce the circular debt without further worsening the budget deficit, and causing inflation. Clearly, resolving the energy crisis has to take top priority for the PML-N government in 2013-14 and it is good to see that this seems to be the case with the prime minister holding one of his first meetings after taking oath on this subject alone.
Looking at how the economy performed sector-wise, large scale manufacturing grew by 2.8 per cent, compared to 1.2 per cent during 2011-12, agriculture grew by 3.3 per cent compared to 3.5 per cent the previous year, while the services sector increased by 3.7 per cent compared to 5.3 per cent last fiscal. Agriculture remains the single biggest sector in terms of providing jobs in the economy with a share of 45 per cent of total employment and this means that this government as well will have to give it the due attention that it deserves. Of course, given that its major products, especially rice and cotton, are subject to the vagaries of the weather, there is only so much that government policy can achieve, but one step towards promoting this sector would be to look for non-traditional markets for export and for promoting products with greater value addition. The Survey also notes that livestock is a vital sub-sector of agriculture: its share of GDP is a massive 11.9 per cent and 55.44 per cent of the income generated in agriculture comes from livestock. One hopes that the PML-N government in particular will take further initiatives in this regard and promote the creation of new products, especially in the related dairy and meat-related sectors. Moving on to the services sector, 2012-13 saw only nominal increase in it, with its share in Pakistan’s GDP rising to 57.7 per cent from 56 per cent the previous year. This is almost three times the share of agriculture in the country’s GDP and points to a growing urbanization of the country. It also means that the government needs to focus on the provision of credit facilities to small and medium enterprises especially since much of services-related economic activity seems to be of this size. Given that commercial banks traditionally lend to larger companies and organizations, there is a growing recognition even in the banking industry that lending to entrepreneurs and small and medium enterprises is not necessarily such a bad business decision. As for manufacturing, it accounts for 13.2 per cent of GDP and employs 13.8 per cent of the labour force. In it, large-scale manufacturing saw the highest growth during 2012-13, increasing by a very healthy 9.32 per cent compared to minus 1.19 per cent during fiscal 2011-12. This is one sector that can do even better if the government is able to reduce chronic loadshedding, since much of it depends on factory production, a sub-sector that continues to be among the hardest hit by power shortages.
The new government has many stiff challenges. Apart from the energy problem, the other is of generating investment in the economy, a crucial driver of economic growth. The Survey notes that in the past five years, investment as a percentage of GDP has fallen quite sharply: from 19.21 per cent in 2007-8 to 14.22 per cent by 2012-13. There are several reasons for this, not least law and order, terrorism and declining confidence in the government of the day. This has also resulted in a sharp decline in foreign direct investment in recent years. One hopes that this will now change with a new dispensation in place. Of course, much of it will depend on the political will that is needed to deliver on election pledges, especially those that related to economic policymaking and management of the economy. That the PML-N has close to a two-thirds majority in parliament should help it bring about some of the much-needed changes that the previous government was unable to do. Other than the energy front, one issue relates to tax collection. Pakistan has one of the lowest tax-to-GDP ratios in the world and it should be instructive in this regard to recall that the last PML-N government made many a promise on the imposition of a sales tax but was unable to enact it after much of its voter base in the form of the trading and commercial community rebelled and forced the party to drop the policy intention altogether. The Survey notes that for the first 10 months of the current fiscal year, Rs 1505.2 billion was collected in tax with a target of Rs2,381 billion for the whole year, meaning that in the remaining two months over Rs775 billion was to be collected – a tall order. How the new government tackles this and other pressing issues highlighted is something that 2013-14 will now bear out for us.
Published in The Express Tribune, June 12th, 2013.