Key highlights of Pakistan Economic Survey 2023-24

Pakistan’s economy struggled to meet most of its targets set in the previous budget due to difficult conditions. Still, the agriculture sector achieved unprecedented growth, announced Finance Minister Muhammad Aurangzeb on June 11 while unveiling the Pakistan Economic Survey (PES) 2023-24.

The agriculture sector saw a significant expansion of 6.25%, the highest in 19 years, which played a crucial role in driving Pakistan’s GDP growth to an expected 2.38% for FY2024, marking a recovery from a contraction of 0.21% in the previous year.

The industrial sector grew by 1.21%. Pakistan’s trade deficit also shrank significantly, with exports increasing by 9.3% and imports declining by 8%, leading to a reduced trade deficit of 4.2% of GDP.

The current account balance improved by 87.5%, with a deficit of $0.5 billion during Jul-Mar FY2024, compared to a $4.1 billion deficit in the same period last year. Federal Board of Revenue tax collection grew by 30.6% to Rs7,361.9 billion from July to April.

The Pakistan Economic Survey 2023-24 report highlighted fiscal discipline, with a fiscal deficit of 3.7% of GDP and a primary surplus of 1.5% of GDP. Total revenues grew by 41%, mainly due to increased non-tax revenues and improved tax collection.

The State Bank of Pakistan maintained a strict monetary policy, keeping the policy rate at 22%, which helped reduce inflation to 26% from 28.2% last year. The current account deficit narrowed significantly to $0.5 billion, and gross foreign exchange reserves rose to $8.0 billion.

Despite these positive aspects, the report noted a decline in the investment-to-GDP ratio, sluggish large-scale manufacturing, and high public debt.

Key highlights from PES 2023-24

  • Most targets were missed, but high agricultural yields led to nearly double the sectoral growth target.
  • Pakistan’s economy is expected to grow by 2.4% in the current fiscal year, compared to a contraction of 0.17% the previous year.
  • Per capita income increased to $1,680 from $1,551.
  • The current account deficit narrowed to $200 million from July to April, compared to $3.9 billion in the same period last year.
  • Inflation eased to 26%, down from last year’s 28%.
  • The investment-to-GDP ratio declined to 13.14% from 14.13% in FY2023.

Severe inflation hit Pakistan

Finance Minister Aurangzeb emphasized the severe inflation faced in 2022-23, highlighting a nearly 29% depreciation of the Pakistani rupee and foreign reserves falling to just two weeks of import cover.

He noted that the current fiscal year began under Prime Minister Shehbaz Sharif’s leadership and was now back under PM Shehbaz’s elected government for the next five years.

Aurangzeb, in his role for three to four months, stressed the necessity of turning to the IMF program, praising the prime minister’s decision to sign a nine-month Stand-by Agreement with the IMF, which he said was crucial for economic stability. “We must go with IMF as there is no plan B,” he said.

Aurangzeb acknowledged the challenges facing large-scale manufacturing but highlighted agriculture as a critical area for future growth. He also mentioned a nearly 30% growth in revenue collection and credited the provinces for delivering surpluses, enabling the government to meet its commitments to the IMF.

The finance minister reported a substantial reduction in the current account deficit, from an estimated $6 billion to around $200 million, and a current account surplus in the first three months of 2024.

Aurangzeb praised the caretaker administration and the State Bank of Pakistan for their efforts to ensure economic stability, such as cracking down on illegal financial activities and regulating foreign exchange.

The minister pointed to the market’s positive response to economic measures, with signs of renewed confidence in both debt and equity markets. “The fixed income and the flows are signals of confidence coming back,” he said.

Increase tax-to-GDP ratio, says Finance Minister

Aurangzeb emphasized that everyone must contribute to the economy through taxes and addressed the issue of electricity theft, estimated at Rs500 billion. He stressed the need to increase the tax-to-GDP ratio, implement energy and power sector reforms, and improve governance and the performance of state-owned enterprises (SOEs). He suggested privatizing electricity distribution companies and restructuring the Pakistan Agricultural Storage & Services Corporation.

The finance minister announced new initiatives to address tax system leakages. “We are now moving towards digitalization to minimize human intervention,” he said. He expressed optimism about the upcoming fiscal year, noting that it would begin on a positive note, and highlighted the significance of core and food inflation coming down, leading to a reduction in interest rates by the Monetary Policy Committee.

Pakistan Economic Survey

The PES is an annual report that provides an overview of Pakistan’s economic progress and highlights its performance in various sectors. The next stage involves the finance minister presenting the budget for the next financial year to the National Assembly, with lawmakers debating the bill’s provisions before it becomes law.

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