Pakistan’s economy continues to face many local and external shocks of 2007 onwards. Economic situation was much affected from the worst floods and rains, the domestic security hazards and the uninterrupted gas and power crisis. The economy of Pakistan during the previous 5-year grew on average, at the rate of 2.9 percent yearly. Deterioration in the energy sector is the key constraint on development. It is true that the power shortfall is frustrating the realization of its true economic potential. Power outages have shaved off yearly Gross Domestic Product (GDP) growth rate of 2 percent. GDP growth rate has been stuck at a point, which is half of the level of the country’s long-term trend possible of about 6.5 percent yearly and is lower than what is needed for sustained rise in employment and income and a lessening in poverty.
However, the previous few years’ economic presentation has predicted that Pakistan has the way possible to move towards, which is required to generate sufficient employment and meaning full poverty reduction given that energy crisis is addressed.
REAL GDP GROWTH RATE (%)
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 (proj)
0.4 2.6 3.7 4.4 3.6 4.4
Recently, it is noted that real GDP growth rate in FY14 is suggested to be 3 to 4 percent. In contrast, the yearly strategy for FY14 sets a GDP growth rate target of 4.4 percent. The factors that supported the recovery in LSM (large-scale manufacturing) should continue to sustain industrial growth in FY14, adding that the predicted launch of 3G services is likely to increase value addition in telecom services. It is said that the growth in agriculture sector is likely to remain below its target of 3.8 percent, as present rains have destroyed the cotton and rice crop in Punjab. Additionally, it is not predicted that minor crops to replicate the strong 6.7 percent growth in FY13.
The projection of GDP growth of 3 to 4 percent for FY14 is higher than the IMF’s growth prediction of 2.5 to 3 percent in the corresponding period. The Budget for FY14 envisages a fiscal shortfall at 6.3 percent of GDP, which presumes Rs120-billion inflow under 3G licenses, 27.8 percent growth in FBR tax-revenues, Rs127.1 billion decrease in subsidies and a combined provincial excess of Rs23.1 billion. It is also said that, while the government appears determined to slash energy subsidies quite aggressively, the FBR revenue goal seems less credible, including that the task ahead for the tax collection body is predicted to be more challenging with subdued growth and a slowdown in imports.
Against the inflation target of 8 percent in FY14, it predicted CPI to hover approximately 10.5 and 11.5 percent; the CPI was 7.4 percent in FY13. The issues in administering public sector enterprises, enlarging the tax net to untaxed or under-taxed regions, containing untargeted subsidies, tackling theft and leakages in the power sector, revitalizing the private sector and rising documentation in the economy remained largely unaddressed during FY13.
The experts said that with inadequate foreign funding, the responsibility of financing the fiscal deficit declined completely on local sources, mainly the banking system. The country’s domestic debt raised by Rs1.9 trillion in FY13 up 24.6 percent from the preceding fiscal year.
However, the lack of foreign inflows also created issues in financing the comparatively small current account deficit. The financial account registered a net inflow of only $0.3 billion during the year as against to $1.3 billion previous year, and $5.1 billion in fiscal 2010. Along with important refunds to the IMF, this pulled down SBP’s liquid forex reserves to a 55 months low of $6 billion by end-June 2013. Moreover, the services sector has provided steady support to Pakistan’s economic growth. The share of this sector rose from 56 percent of GDP in FY2005-06 to 57.7 percent in FY2012-13.
The government has opened up its market to Foreign Service providers, mainly in insurance, retail, banking, telecommunications and some other sectors. The government has so far negotiated the plurilateral deal trade in services to get market access for its exporters and service providers. In absolute terms, export of services declined to $2.064 billion in July-November 2013 as compared $3.011 billion over the same months of previous year. The fall is chiefly driven by reduce in exports of government services. Previous year, yearly export of services touched $6.618 billion in July-June period of FY2012-13 compared with $5.035 billion in the same period previous year. But import of services dropped to $3.136 billion in July-November 2013 from $3.522 billion over the same months of previous year, reflecting a fall of 10.96 percent. Last year, import of services fell to $7.758 billion in July-June FY2012-13 period as compared $8.227 billion in the same period previous year. As a result, the trade deficit in services was up by 109 percent to $1.072 billion in July-November 2013 from $ 511 million in the same months of previous year.
No doubt, a successful economic growth policy must focus on improving the skills of the area's workforce, declining the cost of doing business and making the available resources fulfill business needs to compete and thrive in today's global economy. The GDP growth will remain below the target in the current fiscal year. A massive deficit in major sectors is a matter of concern and there is a need to develop a long-term strategy to achieve GDP target in FY14.