Govt fails to achieve key economic targets

Mehtab Haider
Friday, Jun 09, 2023

ISLAMABAD: Owing to the inability to revive the stalled International Monetary Fund (IMF) programme, restricted imports, severe floods and heightened political temperature in Pakistan, the government has missed all its macroeconomic targets set for the outgoing fiscal year 2022-23. The Economic Survey 2022-23 conceded that the government failed to achieve all macroeconomic targets, including GDP growth rate, inflation, per capita income, fiscal slippages, public debt, exports, investment and savings. The per capita income in dollar terms witnessed a downslide by 11.3 percent and stood at $1,568 in 2023 against $1,765 in FY2022. The size of Pakistan’s economy in dollar terms also shrank as it fell to $341 billion in the current fiscal year 2022-23 against $375 billion in the last financial year 2021-22. Addressing a news conference at P Block (Ministry of Finance) while launching the Economic Survey on Thursday, Federal Minister for Finance Ishaq Dar said that it would be unfair and undemocratic if the incumbent regime starts negotiating fresh deals with the IMF.

“After the elections whosoever wins should talk to the IMF for a new programme. This ongoing IMF programme is going to end on June 30, and we need the completion of the pending 9th Review under the existing programme. I would oppose if the new programme is negotiated before the next elections,” he said. Flanked by Minister for Planning Ahsan Iqbal, Minister for Industries Syed Murtaza Mehmood, Minister of State for Finance Aisha Ghaus Pasha, SAPM on Finance Tariq Bajwa and others, Ishaq Dar said that if anyone wanted to push us against the wall, there is a Plan B to avert default.

Dar said if he had knowledge about dillydallying tactics going on for seven months for the completion of the 9th Review, his strategy might have been different. He blamed the Pakistan Tehreek-e-Insaf for increasing external debt from $70 billion to $100 billion in its four-year rule and added that the country’s assets ran into trillions of dollars related to minerals and agriculture. He said that one gas pipeline of the country possessed a value of $40 to $50 billion. “We faced dollar liquidity crunch mainly because of the foolishness of the previous regime,” he added. The minister said that it would be the constitutional obligation of the incumbent government to present the whole fiscal year’s budget and they would discharge their responsibility.

He said the government would provide the remaining funds of Rs42 billion to the Election Commission of Pakistan (ECP) for holding the next general elections. On the exchange rate, Dar said that Pakistan’s currency was still undervalued as the real effective exchange rate should be fixed at Rs244 against the US dollar while it was Rs197 against the dollar a few months back. He said that there was an ongoing drama with the IMF and there was still a gap of Rs40-45 against the dollar at the moment. He said that there should be no investment in dollars and gold as he had warned in the past and had delivered on it. The government had paid back $6.5 billion on account of foreign loans, including $5.5 billion commercial loans and $1 billion in bond payments. He said the country’s external debt decreased by $4 billion in the ongoing financial year. “The sovereign debt repayment will be on time as it is our first priority to avert default,” he added.

To a query about raise in pay and pension of public sector employees, he said that the core inflation on average stood at around 18 percent, so the government would make all-out efforts to raise the salaries and pensions keeping in view available fiscal space. The minister blamed the PTI’s four-year rule as the main reason for the downslide in all macroeconomic numbers and said that they wanted to reverse the course and move back to the situation prevailing in 2017. He said that the Project (Imran Khan) was launched in 2010, which was culminated in 2022-23 with disastrous effects on the economic front. On the Charter of Economy, Dar said that it could be done after the next elections, for now it was not appropriate. The Economic Survey 2022-23 stated that the severe macroeconomic imbalances, flood damages, domestic supply shocks and international economic slowdown have dampened the economic growth to just 0.29 percent in FY2023.

Following the budget announcement in June 2022, positive economic expectations and the performance of key indicators resulted in the government projecting GDP growth of approximately 5.0 percent in FY2023. However, the economy lost momentum in the first quarter of the ongoing fiscal year due to the severe downturn in the global economy and the flash floods of July-August 2022 and, as a result, the economy suffered from significant domestic supply disruptions. The flood damage is estimated at Rs3.2 trillion (US$14.9 billion), the loss to GDP at Rs3.3 trillion (US$15.2 billion) and the recorded need for rehabilitation of damages at Rs3.5 trillion (US$16.3 billion).

On the international front, the prolonged Russia-Ukraine conflict adversely affected global growth and inflation remained unexpectedly high. In FY2023, Pakistan’s GDP grew by 0.29 percent, with 1.55 percent growth in agriculture, -2.94 percent in industrial sector, and 0.86 percent in services sector. The GDP at current market prices recorded Rs84,658 billion, showing a 27.10 percent growth over the previous year Rs66,624 billion (US$341 billion). The decrease in per capita income -- from $1,765 to $1,568 -- in FY2023 was attributed to the significant depreciation of the Pakistani rupee and the contraction in economic activity. For FY2023, the Investment-to-GDP ratio stood at 13.6 percent as compared to 15.6 percent in FY2022. The estimates of Gross Fixed Capital Formation (GFCF) stood at Rs10,093.5 billion, showing an increase of 8.1 percent compared to FY2022.

The industry-wise disaggregation of the GFCF by the government suggests an increase of 17.7 percent, 89.2 percent, and 5.9 percent in public administration and social security, education and human health, and social work respectively. Pakistan faced a heavy monsoon spell in July-August 2022, which damaged two main sub-sectors i.e. crops and livestock. Moreover, the damage in the agriculture sector had a spillover effect on the industry and allied services sectors. As a result, domestic production remained below the required levels, raising the prices of all essential food items to a historic high. The total damage in the agriculture sector amounts to approximately Rs800 billion ($3.725 billion).Restoring the livelihoods of smallholder farmers and livestock keepers was urgent and time-sensitive for meeting the upcoming Rabi cropping season 2022-23 and preventing further losses to livestock assets and production.

To meet the domestic demand for food items, the government took up the matter immediately and allowed the import of essential food items on a fast-track basis from neighbouring countries. The Rabi 2022-23 remained challenging for the peasants of Sindh and Balochistan, particularly being the most flood-affected areas, the Economic Survey said. In case of manufacturing and mining, the proliferation of risks, including the global economic slowdown and flood damages, coupled with the SBP’s restrictive policies such as high-interest rates, import restrictions and the closure of LCs to correct the balance of payments and control inflation, has created headwinds for businesses, consumer confidence, and investment. Thus, the industry was weighed down by various domestic and external factors, leading to a slowdown in its performance in FY2023. Large-scale manufacturing (LSM) remained on the negative side, at negative 8.11 percent during July-March FY2023 against the growth of 10.61 percent in the corresponding period last year.

The development of the mining sector has been hindered by inadequate infrastructure, lacking technology and insufficient financial resources. Production of major minerals such as coal, dolomite, barium sulphate, limestone, rock salt, and ocher witnessed a growth of 17.6 percent, 42.2 percent, 53.6 percent, 10.6 percent, 12.4 percent and 15.4 percent respectively during July-March FY2023. However, some witnessed negative growth such as natural gas 9.3 percent, crude oil 10.2 percent, chromite 12.6 percent, magnesite 50.0 percent, gypsum 5.0 percent, sulphur 25.0 percent, soapstone 43.2 percent and iron ore 51.6 percent.

The Consumer Price Index (CPI) inflation for the period July-April FY2023 was recorded at 28.2 percent as against 11.0 percent during the same period last year. The other inflationary indicators like Sensitive Price Indicator (SPI) recorded at 31.7 percent as against 16.9 percent last year. The Wholesale Price Index recorded at 34.0 percent in July-April FY2023 compared to 22.9 percent same period last year. The inflationary pressures are emanating from weaker exchange rates, supply disruptions created by flood damages, higher global food prices and broader tariff reforms for both electricity and fuels.

The government is taking administrative actions, policy reforms and relief measures to control the prices of essential items, the survey said. The balance of payments position during July-March FY2023 remained under pressure mainly due to adverse global shocks and domestic developments. The international commodity prices are still above the pre-pandemic level, having weighed on the external account. Moreover, the tightening of the global financial environment has made it difficult for emerging markets like Pakistan to access international financial markets. Consequently, Pakistan’s foreign exchange reserves and exchange rate came under pressure. Furthermore, the devastating flood in July-August 2022 has further aggravated the gloomy economic conditions, the Economic Survey said.

The current account deficit (CAD) contained by 76 percent and was recorded at $3.3 billion during July-April FY2023, against a deficit of $13.7 billion in the same period last year. The improvement in the CAD was on the back of a substantial decline in imports by 23 percent in July-April FY2023. Despite a contained CAD and lower materialisation of multilateral inflows, SBP’s foreign exchange reserves witnessed a decline mainly on the account of amortisation of official loans and liabilities during July-April FY2023 and reached a level of $4.5 billion by the end of April 2023. Due to the external account pressure on the foreign exchange markets, the average monthly rupee against dollar depreciated by 27.8 percent during July-April FY2023. Total public debt was recorded at Rs59,247 billion at end-March 2023. Domestic debt was recorded at Rs35,076 billion while external public debt was recorded at Rs24,171 billion or $85.2 billion. The public debt portfolio witnessed various positive developments during July-March FY2023, some of which are highlighted as follows: Within domestic debt, the government relied on long-term domestic debt securities for financing its fiscal deficit and repayment of debt maturities.

Within external debt, inflows from multilateral sources and foreign commercial banks remained major sources of gross external inflows. Under the 7th and 8th Reviews of the IMF programme, $1,166 million was disbursed, while $1,500 million was received from Asian Development Bank under the Building Resilience with Active Countercyclical Expenditures (BRACE) programme. The Asian Infrastructure Investment Bank (AIIB) co-financed the BRACE programme to the tune of $500 million. In addition, $1,900 million in loans from commercial banks were also refinanced. The government rolled over $3,000 million in deposits each from China and Saudi Arabia which were utilised towards budgetary support. The Saudi oil facility amounting to around $900 million was utilised (around $100 million each month). The government repaid international commercial loans to the tune of $5,541 million, out of which $4,541 million were bank loans, whereas $1,000 million was international Sukuk maturity. The government’s strategy to reduce its debt burden to a sustainable level includes a commitment to run primary budget surpluses, maintain low and stable inflation, promote measures that support long-term sustainable economic growth and follow an exchange rate regime based on economic fundamentals. Additionally, the government is also committed to ensuring fiscal discipline through revenue mobilisation and expenditure rationalisation and maintaining debt sustainability over the medium term.