Pakistan economy under tremendous stress

ISLAMABAD — All the major economic indicators set for the outgoing financial year performed poorly, registering 5.8 per cent GDP growth rate against the original target of 7.2 per cent.

By A Correspondent (Economic Survey-2008)

Published: Wed 11 Jun 2008, 12:56 AM

Last updated: Sun 5 Apr 2015, 1:08 PM

Minister for Finance Syed Naveed Qamar released the Economic Survey for 2007-08 at a news conference, confessing that Pakistan's economy remained under tremendous stress in 2007-08 due to which major economic targets could not be achieved.

"We are launching the State of the Economy Report, officially and with this launching of the Survey the process of presenting the Federal Budget 2008-09 to the Parliament has begun. This will be the first budget of the new democratically elected government which took charge only 72 days back and inherited a complex macroeconomic situation".

Fiscal year 2007-08 has been a challenging year for Pakistan's economy. This year has seen several political and economic events, both on domestic and external front occurring unexpectedly. All these events have adversely impacted the performance of the economy during the year.

According to the survey real GDP grew by 5.8 per cent in 2007-08 as against the revised estimates of 6.8 per cent last year and this year's target of 7.2 per cent. With economic growth at 5.8 per cent in 2007-08, Pakistan's economy has grown at an average rate of 7.0 per cent per annum during the last five years. The growth of this magnitude not only shows its resilience but also provides a source of optimism that through a combination of adjustments and reforms we can regain the growth momentum.

The performance of agriculture has been far from satisfactory as it grew by 1.5 per cent as against 3.7 per cent last year and target of 4.8 per cent. However, overall manufacturing, accounting for 19 per cent of GDP, recorded a modest growth of 5.4 per cent against 8.2 per cent last year. Large-scale manufacturing, accounting for almost 70 per cent of overall manufacturing, registered a growth of 4.8 per cent in 2007-08 against the target of 12.5 per cent and last year's achievement of 8.6 per cent.

Construction continued its strong showing, partly helped by activity in private housing market, spending on physical infrastructure, and reconstruction activities in earthquake affected areas. The construction sector is estimated to grow by 15,2 per cent in 2007-08 as against 17.9 per cent last year.

Services sector continued to maintain a solid pace of expansion at 8.2 per cent as against 7.6 per cent last year. Over three-fourth (75 per cent) contribution to this year's growth came alone from services sector. Therefore, this year's growth is services sector - led -growth.

The per capita income in dollar term has increased from $926 in 2006-07 to $ 1085 in 2007-08, showing an increase of 18.4 per cent.

Total investment could not sustain its record level of 22.9 per cent of GDP of last fiscal year and declined to 21.6 per cent of GDP in 2007-08.

The inflation rate, as measured by the changes in Consumer Price Index (CPI), averaged 10.3 per cent during the first ten months (July-April) of the current fiscal year, 2007-08, as against 7.9 per cent in the comparable period of last year. The food inflation is estimated at 15.0 per cent and non-food at 6.8 per cent, against 10.2 per cent and 6.2 per cent in the corresponding period of last year.

The overall fiscal deficit is estimated at IRS, 737.8 billion or 7.0 per cent of GDP for 2007-08 massive slippages in expenditure side on account of interest payments and subsidies are responsible for the rise in fiscal deficit. FBR was targeted to collect Rs1,025 billion but they are likely to collect Rs1,000 billion.

Overall exports recorded a growth of 10.2 per cent during the first ten months (JulyApril) of the current fiscal year against a growth of 3.6 per cent in the same period last year. In absolute terms, exports have increased from $13.8 billion to $ 15.3 billion. Broad categories of exports suggest that with the exception of textile manufactures, all other categories of exports registered strong growth.

Imports during the first ten months (July-April) of the current fiscal year (2007-08) grew by 28.3 per cent to $32.1 billion on the back of an extraordinary surge in the imports of petroleum products as well as imports of food group and raw material.

Trade balance: During the first ten months of the current fiscal year (July- April), the merchandise trade deficit worsened sharply to $ 17 billion as compared to $ 11 billion in the same period last year.

The surge in merchandize trade deficit owes to an outsized increase of 28.3 per cent in imports that more than offset a modest export growth 10.2 per cent.

Current account balance: Pakistan's current account deficit further widened to $ 11.6 billion (including official transfers) during Jul-Apr FY08 against US$ 6.6 billion in the comparable period of last year, showing an increase of 75.6 per cent. Even when compared to the size of the economy, the current account deficit was substantially high at 6.9 per cent of GDP during Jul-April FY08 as against 4.6 per cent for the same period last year.

Workers' remittances: Workers' remittances registered commendable growth during July-Apr FY08, growing by 19.5 per cent to $5.3 billion on top of 22.7 per cent growth in the corresponding period of last year. Remittances routed through exchange companies contributed 60.2 per cent in the overall remittances growth. As a result, foreign exchange companies share in overall remittances increased to 23.8 per cent during July-April FY08 from 16.7 per cent for same period last year.

Foreign exchange reserves: Pakistan's total foreign exchange reserves stood at $ 12.3 billion as of end-April 2008 significantly lower than end June 2007 level of $15.6 billion.

Exchange rate: Pak rupee, after remaining stable for more than four years, lost significant value against the US dollar, depreciating by 6.4 per cent during July-April 2007-08.

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