Preamble:
For Pakistan, 2018 marked by economic instability. From lows of 2012 to record breaking performance graduated over last five years, it is under pressure again chiefly due to widening trade deficit owing to huge import bills, resulting mounting of current account deficit (“CAD”) and devaluation of Pak Rupee.
The economy did not fare well in 2018. Acceleration halted and the economic challenges were aggravated in the second half. The PTI government’s negotiated bilateral inflows averted a sovereign default and offered space for maneuverability to fix disruptive factors.
As end of 2018, all global economic forecasters have revised down the expected economic performance of the country citing shrinking foreign exchange reserves and a high debt burden among other factors. The World Bank, International Monetary Fund (IMF) and the Asian Development Bank have brought down the GDP growth forecast by two to three per cent. Reputable credit rating agencies Moody’s and Fitch Ratings have downgraded Pakistan to the lower end of the highly speculative grade.
It is appropriate to identify the missteps that changed the future perception from highly optimistic at the start of 2018 to moderately doubtful by its close. It will, however, be more relevant at this moment to pinpoint factors that can influence the economic course going forward.
The provisional GDP for the year 2018-19 had been estimated at 6.2 percent (4.7-5.2 percent as per SBP projection) as compared to 5.8% (revised) during 2017-18. The growth of the agricultural, industrial and services sector was 3.81%, 5.80% and 6.43% respectively for year 2017-18. The growth in GDP during 2017-18 was majorly contributed by service sector (3.85%) followed by Industrial and agricultural sector (1.21% and 0.73% respectively).
(Source: Budget in Brief 2018-19 and PBS)
The sectors are further discussed below briefly:
1. Agricultural SectorDecline in the area under sugarcane crop, water shortages at the time of sowing of kharif crops – especially cotton – and weak trends in the off-take of fertilizer indicate that agriculture sector may not repeat last year’s extraordinary performance. Recent rains and improved water availability as well as increased area under rice and cotton crops, however, may provide some support. Therefore, the agriculture sector may not repeat last year’s extraordinary performance and growth may fall below 3.8%. Sugar production may go down on account of expected decline in sugarcane crop. During year 2017-18 the agricultural sector grew by 3.81%. The growth of crops during that year, was 3.83%. The growth in production of three important crops namely rice, sugarcane and cotton were at 8.7%, 7.4%, and 11.8% respectively, while a decline in production was estimated in Wheat and Maize at 4.4% and 7.1% respectively. Whereas, livestock sector registered a growth of 3.76%.
Livestock, forestry and fishing has also contributed to GDP growth and grew by 3.76%, 7.17% and 1.63% respectively. (Source: PBS and SBP Annual Report)
2. Industrial SectorIn Current year the industrial sector may also witness a slowdown. Slowdown expected on reduction in consumer demand, Construction & consumer durable industries may see lower growth in production. The overall output of LSMI decreased by 0.9% for July-November 2018-19 compared to July-November 2017-2018, the production in Jul-Nov 2018-19 as compared to Jul-Nov 2017-18 has significantly decreased in Pharmaceuticals, Coke & Petroleum Products, Iron & Steel Products and Electronics while it has increased in Fertilizers and Paper & Board. During year 2017-18the overall industrial sector showed an increase of 5.80. The mining and quarrying sector grew by 3.04%. The large-scale manufacturing sector showed an increase of 6.24%. Major contributors to this growth were cement (12%), tractors (44.7%), trucks (24.41%) and petroleum products (10.26%). Electricity and gas sub sector showed growth of 1.84% while the construction activity increased by 9.13%. (Source: PBS)
3. Services SectorSlower growth in industrial and agriculture sectors will also affect performance of the services sector. During year 2017-18 the services sector showed a growth of 6.43%. Wholesale and retail trade sector grew at a rate of 7.51% which is dependent on the output of agriculture and manufacturing and imports. Agriculture increased by 3.81%, Manufacturing increased by 5.80% and imports increased by 17%. Transport, storage and communication sector grew at a rate of 3.58%. Finance and insurance sector showed an overall increase of 6.13%, General government services grew by 11.42%. It is mainly driven by the increase in salaries and the inflation. Other private services also contributed positively. (Source: PBS)
HISTORICAL GDP GROWTH RATES
Pakistan has been successful in achieving consistently increasing growth rates during last six fiscal years.
GDP – A GEOGRAPHICAL COMPARISON
A comparison of growth with other countries of region shows Pakistan’s growth has been consistent as compared to India and Sri Lanka. The GDP growth of India has been stagnant for last three years, whereas, Pakistan’ GDP growth has shown improvements.
(www.data.worldbank.org)
(IMF, World Economic Outlook, Database, Oct 2018)
(IMF, World Economic Outlook, Database, Oct 2018)
INFLATION
Average inflation for 2018-19, targeted at 6.0 percent (6.5-7.5 percent as per SBP) higher than 3.9% recorded in 2017-18. Increase in gas tariffs, import duties and excise duties further add to inflation both directly and indirectly. Period-wise analysis shows CPI slightly increased to 6.05 percent for July-December 2018-19 compared to 3.75 percent in July-December 2017-18. Average SPI during at July-December 2018-19, was at 2.06 percent as against 1.33 percent in July-December 2017-18. Similarly, average WPI stood at 11.58 percent in the same period compared to 1.96 percent last year.
For Pakistan, 2018 marked by economic instability. From lows of 2012 to record breaking performance graduated over last five years, it is under pressure again chiefly due to widening trade deficit owing to huge import bills, resulting mounting of current account deficit (“CAD”) and devaluation of Pak Rupee.
The economy did not fare well in 2018. Acceleration halted and the economic challenges were aggravated in the second half. The PTI government’s negotiated bilateral inflows averted a sovereign default and offered space for maneuverability to fix disruptive factors.
As end of 2018, all global economic forecasters have revised down the expected economic performance of the country citing shrinking foreign exchange reserves and a high debt burden among other factors. The World Bank, International Monetary Fund (IMF) and the Asian Development Bank have brought down the GDP growth forecast by two to three per cent. Reputable credit rating agencies Moody’s and Fitch Ratings have downgraded Pakistan to the lower end of the highly speculative grade.
It is appropriate to identify the missteps that changed the future perception from highly optimistic at the start of 2018 to moderately doubtful by its close. It will, however, be more relevant at this moment to pinpoint factors that can influence the economic course going forward.
The provisional GDP for the year 2018-19 had been estimated at 6.2 percent (4.7-5.2 percent as per SBP projection) as compared to 5.8% (revised) during 2017-18. The growth of the agricultural, industrial and services sector was 3.81%, 5.80% and 6.43% respectively for year 2017-18. The growth in GDP during 2017-18 was majorly contributed by service sector (3.85%) followed by Industrial and agricultural sector (1.21% and 0.73% respectively).
(Source: Budget in Brief 2018-19 and PBS)
The sectors are further discussed below briefly:
1. Agricultural SectorDecline in the area under sugarcane crop, water shortages at the time of sowing of kharif crops – especially cotton – and weak trends in the off-take of fertilizer indicate that agriculture sector may not repeat last year’s extraordinary performance. Recent rains and improved water availability as well as increased area under rice and cotton crops, however, may provide some support. Therefore, the agriculture sector may not repeat last year’s extraordinary performance and growth may fall below 3.8%. Sugar production may go down on account of expected decline in sugarcane crop. During year 2017-18 the agricultural sector grew by 3.81%. The growth of crops during that year, was 3.83%. The growth in production of three important crops namely rice, sugarcane and cotton were at 8.7%, 7.4%, and 11.8% respectively, while a decline in production was estimated in Wheat and Maize at 4.4% and 7.1% respectively. Whereas, livestock sector registered a growth of 3.76%.
Livestock, forestry and fishing has also contributed to GDP growth and grew by 3.76%, 7.17% and 1.63% respectively. (Source: PBS and SBP Annual Report)
2. Industrial SectorIn Current year the industrial sector may also witness a slowdown. Slowdown expected on reduction in consumer demand, Construction & consumer durable industries may see lower growth in production. The overall output of LSMI decreased by 0.9% for July-November 2018-19 compared to July-November 2017-2018, the production in Jul-Nov 2018-19 as compared to Jul-Nov 2017-18 has significantly decreased in Pharmaceuticals, Coke & Petroleum Products, Iron & Steel Products and Electronics while it has increased in Fertilizers and Paper & Board. During year 2017-18the overall industrial sector showed an increase of 5.80. The mining and quarrying sector grew by 3.04%. The large-scale manufacturing sector showed an increase of 6.24%. Major contributors to this growth were cement (12%), tractors (44.7%), trucks (24.41%) and petroleum products (10.26%). Electricity and gas sub sector showed growth of 1.84% while the construction activity increased by 9.13%. (Source: PBS)
3. Services SectorSlower growth in industrial and agriculture sectors will also affect performance of the services sector. During year 2017-18 the services sector showed a growth of 6.43%. Wholesale and retail trade sector grew at a rate of 7.51% which is dependent on the output of agriculture and manufacturing and imports. Agriculture increased by 3.81%, Manufacturing increased by 5.80% and imports increased by 17%. Transport, storage and communication sector grew at a rate of 3.58%. Finance and insurance sector showed an overall increase of 6.13%, General government services grew by 11.42%. It is mainly driven by the increase in salaries and the inflation. Other private services also contributed positively. (Source: PBS)
HISTORICAL GDP GROWTH RATES
Pakistan has been successful in achieving consistently increasing growth rates during last six fiscal years.
GDP – A GEOGRAPHICAL COMPARISON
A comparison of growth with other countries of region shows Pakistan’s growth has been consistent as compared to India and Sri Lanka. The GDP growth of India has been stagnant for last three years, whereas, Pakistan’ GDP growth has shown improvements.
(www.data.worldbank.org)
(IMF, World Economic Outlook, Database, Oct 2018)
(IMF, World Economic Outlook, Database, Oct 2018)
INFLATION
Average inflation for 2018-19, targeted at 6.0 percent (6.5-7.5 percent as per SBP) higher than 3.9% recorded in 2017-18. Increase in gas tariffs, import duties and excise duties further add to inflation both directly and indirectly. Period-wise analysis shows CPI slightly increased to 6.05 percent for July-December 2018-19 compared to 3.75 percent in July-December 2017-18. Average SPI during at July-December 2018-19, was at 2.06 percent as against 1.33 percent in July-December 2017-18. Similarly, average WPI stood at 11.58 percent in the same period compared to 1.96 percent last year.
Comments
Post a Comment