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Pakistan posts 8.4pc GDP growth in ’04-05

ISLAMABAD — Pakistan has achieved an 8.4 per cent GDP growth — highest after two decades — due to better macro economic policies, fiscal discipline and a competitive exchange rate maintained during the outgoing financial year, the government said yesterday.

An Economic Survey for fiscal 2004-05 released at a news conference by Prime Minister's Advisor on Finance Dr Salman Shah said an impressive agriculture growth rate of 7.5 per cent played a major role in achieving the 8.4 per cent GDP growth rate. "There has been an all-time high 21.1 million tonnes of wheat production and 14.6 million cotton bales that helped us to have this spectacular growth rate", he said.

He told reporters that now one of the major challenges was to sustain this over-8 per cent growth rate during the next few years so that the fruits of the revived economy could reach to the common man.

"Pakistan stood third after China and Singapore in Asia as far as better growth rate is concerned", he said. The advisor was accompanied by State Minister for Finance Omar Ayub and Advisor to the ministry of finance Dr Ashfaque Hasan Khan at the news conference.

Real GDP grew by 8.4 per cent in 2004-05 as against 6.4 per cent last year and surpassed the target (6.6 per cent) by a wide margin. This is the third year in a row when Pakistan overshoot its growth target by a wide margin. The sharp pick up in growth this year is aided by a stellar performance in large-scale manufacturing, impressive recovery in agriculture and a strong growth in services sector.

This year's growth is truly broad-based as each subsector has recorded strong growth. Large-scale manufacturing grew by 15.4 per cent against the target of 12.2 per cent and last year's achievement of 18.2 per cent. Growth in large-scale manufacturing is also broad-based as many sub-sectors registered a high double- digit growth. Agriculture posted a growth of 7.5 per cent against the target of 4.0 per cent and last year's achievement of 2.2 per cent.

The services sectors registered an equally strong growth of 7.9 per cent, aided by remarkable growth in finance and banking sector (21.8 per cent), wholesale and retail trade (12.0 per cent); and a modest growth in transport and communication (5.6 per cent).

With 8.4 per cent growth, Pakistan has joined Singapore to emerge as the second fastest growing economy of Asia after China in 2004-05.

"This does not mean that Pakistan has joined the East Asian league, including China, in terms of prosperity and living standards. To join the league, it would require a rapid growth over a prolonged period for which, much more efforts would be required," the survey admitted. This year's growth is however, underpinned by supportive macroeconomic polices and benign financial market conditions," the survey said.

Sugarcane production was down by 15.2 per cent on the back of severe water shortage during Kharif season. Rice, another water intensive crop, grew by 2.9 per cent over last year.

Major crops, accounting for 37.1 per cent of agricultural value added, registered highest growth (17.3 per cent) in decades as against 1.8 per cent last year. Minor crops, contributing 12.2 per cent to overall agriculture, grew by 3.1 per cent as against 2.6 per cent last year.

The survey said that the exceptionally strong growth was underpinned by accommodative macroeconomic policies, that made the outgoing fiscal an eventful year for Pakistan's economy. The year has posted several multi-year "firsts." Pakistan's real GDP growth of 8.4 per cent in 2004-05 is the fastest pace in two decades; the fifth time in the country's history that it exceeded 8 per cent growth mark; Pakistan positioned itself as the second fastest growing economy after China in 2004-05; its per capita income crossed $700 mark; Pakistan achieved highest ever production of cotton (14.6 million bales) and wheat (21.1 million tons) in 2004-05; it has seen the largest ever expansion of private sector credit in 2004-05; exit from the IMF Programme marks an important milestone; Pakistan became the fourth sovereign to issue an Islamic Bond (Sukuk), following Malaysia, Qatar and Bahrain; the country's public and external debt burden declined to their lowest in decades; current account balance slipped into the red after posting surpluses for three consecutive years; and inflation at 9.3 per cent is the highest in 8 years.

Pakistan is in the midst of an economic upturn. Since 2002- 03, the economy has mounted a strong recovery with a sustained improvement in prospects. During the fiscal year 2004-05, many of its macroeconomic indicators show marked improvement over last year.

The most important achievements of the year include: the fastest pace in real GDP growth, powered by stellar growth in large-scale manufacturing, a sharp pick up in agriculture, a continuing robust performance in services, and an extra-ordinary strengthening of consumer demand; a double-digit growth in per capita income in dollar term, reaching $736; investment upturn gaining a stronger footing, particularly private sector investment which remained buoyant owing to a rare confluence of various positive developments; an unprecedented increase in credit to private sector for second year in a row; sharp increases in the consumption of oil, gas, electricity and coal reflecting rising level of economic activity; fiscal deficit remaining on target despite Rs50 billion shortfall in revenue on account of lower collection of petroleum development levy (PDL); higher than targeted collection of taxes; a high double-digit growth in exports and imports; workers' remittances maintaining their momentum; a continued accumulation of foreign exchange reserves and stability in the exchange rate; a sharp decline in the public and external debt burden; privatisation programme continued to maintain its robust momentum; launching of first ever Islamic Bond (Sukuk) in international capital markets; and the performance of Eurobond remained in line with the markets with the spread over US Treasury undergoing further compression.

"It is not uncommon to see pressures building up on prices, trade and current account balances when economic activity accelerates", the survey said, adding that Pakistan's economy is undergoing structural shifts that are fuelling rapid changes in consumer spending patterns.

The extra-ordinary surge in domestic demand in conjunction with unprecedented rise in oil prices fuelled import demand which more than offset the improved outcome for exports.

Accordingly, this year has witnessed widening of trade deficit more than what was envisaged at the beginning of the year. With trade gap widening, the current account balance slipped into the red after posting surpluses for three consecutive years.

The year has also seen inflation rising to 8 years high, hurting the poor and fixed income groups the most. In particular, food inflation at high double-digit has put extra-ordinary burden on poor segment of the society as they spend bulk of their income on food items.

A surge in domestic demand on the one hand and supply side shocks emanating from rising commodity and oil prices on the other, have been responsible for the sharp pick up in inflation this year. This year has seen improvements in many macroeconomic indicators along with improvements in social and living conditions indicators. Results from the recently concluded Pakistan Social and Living Standards Measurement (PSLM) Survey show a marked improvement in social and living conditions indicators.

Key indicators such as literacy rate, gross and net enrolment in primary, middle and matric levels; access to sanitation and safe drinking water; use of electricity and gas as source of lighting and cooking fuel, respectively; various health indicators such as child immunisation and treatment of Diarrhea, have all shown marked improvements over the last 4-7 years.

While socioeconomic and macroeconomic polices pursued during the year have had a strong influence on across-the-board improvement, an increasingly broad and dynamic global recovery has aided Pakistan in this endeavor. Notwithstanding strong global economic expansion supporting growth in developing countries, several other factors have impacted these countries adversely to varying degrees.

These factors include: rising oil prices, sliding dollar, rising inflation and interest rates. This year has seen unprecedented rise in oil prices on the back of rising demand and a series of supply disruption including capacity constraints in raising supply.