Saturday, September 23, 2023

Pakistan to register 0.29% GDP growth in FY23, well below target of 5%

Pakistan fell short of its Gross Domestic Product (GDP) target by 4.7% as it is anticipated to register GDP growth of 0.29% in the fiscal year ending June 2023, significantly lagging behind the 5% target established in the previous year, according to the country’s economic survey issued on Thursday.

Pakistan Economic Survey 2022-23, presented by Finance Minister Ishaq Dar, serves as a comprehensive publication of the Ministry of Finance, providing insights into macroeconomic indicators, development policies, sectoral achievements, and strategies during the outgoing fiscal year.

As the Finance Minister prepares to present the annual budget to parliament, he acknowledged the challenges faced by the coalition government throughout the year, referring to it as a difficult period for the economy.

Dar will present the annual budget document before parliament today, Friday, June 9. 

Key takeaways:

According to the economic survey:

  • Real GDP posted a growth of 0.29% in FY23.
  • GDP at current market prices stood at Rs84,657.9 billion in FY23, showing a growth of 27.1% over last year (Rs66,623.6 billion).
  • Per capita income stood at $1,568 as compared to $1,765 last year.
  • The investment to GDP ratio stood at 13.6% in FY23 compared to 15.6% in FY22.
  • Growth of the agriculture sector was estimated at 1.55% in FY23.
  • The industrial sector posted a negative growth of 2.94% in FY23.
  • The services sector witnessed meager growth of 0.86%.

Inflation

The Consumer Price Index (CPI) national inflation soared to an average of 29.2% during the period of July to May in the fiscal year 2022-2023. This figure is in stark contrast to the 11.5% recorded in the corresponding period of the previous year. The survey further highlights the following key points:

  • Urban food inflation experienced a substantial increase, reaching 37.3% in the July-May period of FY23, compared to 12.5% in the same period last year.
  • Non-food items inflation in urban areas was recorded 20.3% during July-May FY23, compared to 10.2% in the previous year.
  • In rural areas, food inflation surged to 41.1% in July-May FY23, as opposed to 11.8% in the corresponding period last year.
  • Similarly, non-food items in rural areas reached 24.9% in July-May FY23, compared to 11.5% last year.
  • Urban and rural core inflation stood at 16% and 20.1% respectively during July-May FY23, in contrast to 7.8% and 8.6% in the previous year.
  • The Wholesale Price Index (WPI) recorded an increase of 33.9% during July-May FY23, compared to 23.6% in the previous year.

Growth

Pakistan’s real GDP experienced a modest growth of 0.29% in the outgoing fiscal year. The economy faced significant hurdles, including macroeconomic imbalances, supply shocks, and a global economic slowdown, which hindered overall economic growth. The survey highlights the following key points:

  • In the first quarter of FY23, the country was hit by devastating floods that caused widespread damage to agricultural land and disrupted domestic supply chains.
  • The estimated damages caused by the floods amounted to Rs3.2 trillion ($14.9 billion), while the GDP loss was calculated at Rs3.3 trillion ($15.2 billion). Additionally, the rehabilitation expenditures were estimated at Rs3.5 trillion ($16.3 billion).
  • The GDP, measured at current market prices, reached Rs84,657.9 billion in FY23, exhibiting a growth of 27.1% compared to the previous year’s figure of Rs66,623.6 billion.
  • The investment-to-GDP ratio declined to 13.6% in FY23, down from 15.6% in FY22. This decrease can be attributed to both global and domestic economic slowdowns, as well as contractionary macroeconomic policies implemented during the period.
  • The per capita income stood at $1,568 in FY23, reflecting a decrease from the previous year’s figure of $1,765. This decline can be attributed to currency depreciation, lower GDP growth, and a rising population.

Agriculture

Pakistan’s agriculture sector faced significant challenges during the fiscal year 2022-2023, primarily due to flash floods that adversely affected Kharif crops. The sector experienced a growth rate of 1.55%, a decline from the previous year’s growth of 4.27%. The survey provides the following key insights:

  • Cotton production suffered a severe decline of 41%, reaching 4.91 million bales compared to 8.33 million bales in the previous year.
  • Rice production also recorded a decline, with output falling to 7.32 million tonnes from 9.32 million tonnes, representing a decline of 21.5% compared to the previous year.
  • Sugarcane production, however, witnessed a modest increase, reaching 91.11 million tonnes, a 2.8% growth over the previous year’s production of 88.65 million tonnes.
  • Maize production showed a positive trend, increasing by 6.9% to 10.18 million tonnes compared to 9.52 million tonnes in the previous year.
  • Wheat production experienced a notable increase, reaching 27.63 million tonnes, a 5.4% growth compared to 26.21 million tonnes in the previous year.

Moreover, agriculture lending institutions disbursed Rs1,222 billion during July-March FY23, which accounts for 67.2% of the annual target. This amount is 27.5% higher than the Rs958.3 billion disbursed during the same period last year, reflecting increased financial support for the agriculture sector.

Industries

The economic survey acknowledges that Pakistan’s economy has encountered not only external shocks but also multiple domestic challenges. These challenges have affected various sectors and posed obstacles to economic stability. The document highlights the following key points:

  • The pre-budget document identifies flood damages as a significant reason for losses in the cotton industry, which comprises half of the industry’s required cotton input. The damages caused by floods have disrupted the supply chain and had a negative impact on the performance of the cotton sector.
  • The State Bank of Pakistan (SBP) implemented restrictive policies to address the balance of payment crisis and control inflation. These policies, including high-interest rates and import restrictions, have created headwinds for business and consumer confidence, as well as investment in the country.
  • Large-scale manufacturing (LSM) growth experienced a decline of 8.11% during July-March FY23, in contrast to the growth of 10.6% recorded in the same period the previous year. This decline reflects the challenges faced by the manufacturing sector.
  • Among the different segments of large-scale manufacturing, furniture products recorded the highest growth rate of 48.26%, followed by wearing apparel at 31.68%, other manufacturing (footballs) at 34.82%, and leather products at 2.47%.

The sectors which recorded negative growth during the period are:

  • Textile 16.03%
  • Food 8.71%
  • Beverages 3.39%
  • Tobacco 23.78%
  • Rubber products 8.08%
  • Fabricated metals 13.83%
  • Electrical equipment 11.15%
  • Pharmaceuticals 23.20%
  • Wood products 66.22%
  • Automobile 42.48%
  • Iron and steel 4.02%
  • Machinery and equipment 46.01%
  • Chemicals 6.29%
  • Other transport equipment 38.91%

While talking about the outgoing fiscal year 2022-23, the finance minister said that this year the government has added information technology to the economic survey as a “stand-alone” sector.

“This sector has the potential for growth in the coming days,” said the minister. He added that the government’s aim is to achieve macroeconomic stability along with inclusivity and resilience.

“We want it to be inclusive to avoid the maldistribution of resources,” said the finance minister. He emphasised that if this is done that the investors’ confidence can be restored.

Revenue

Pakistan’s consolidated fiscal operations witnessed a growth in total revenues during the period of July to March in the fiscal year 2022-2023. The economic survey highlights the following key findings:

  • Total revenues increased by 18.1% to Rs6,938.2 billion (8.2% of GDP) in July-March FY23, compared to Rs5,874.2 billion (8.8% of GDP) in the previous year. This growth can be attributed to both tax and non-tax collections.
  • Tax revenues, including federal and provincial taxes, experienced a notable increase of 16.5%. Despite facing various economic challenges domestically and globally, the Federal Board of Revenue (FBR) managed to achieve a significant rise in tax collection.
  • The total tax collection reached Rs5,617.7 billion during July-March FY23, compared to Rs4,821.9 billion in the corresponding period of the previous year.
  • Non-tax revenues also witnessed a substantial growth of 25.5%, amounting to Rs1,320.5 billion in the first nine months of the fiscal year, as compared to Rs1,052.2 billion in the same period last year.
  • FBR tax collection during July-May FY23 increased by 16.1% to Rs6,210.1 billion, surpassing the figure of Rs5,348.2 billion recorded in the previous year.

Fiscal deficit

According to the pre-budget document, Pakistan’s economy has witnessed positive developments in the fiscal deficit and current account during the period under review. The key findings are as follows:

  • The fiscal deficit decreased to 4.6% of GDP (Rs3,929.3 billion) during July-April FY23, compared to 4.9% of GDP (Rs3,275.2 billion) in the same period of the previous year. This reduction in the fiscal deficit indicates improved fiscal management.
  • The primary balance, which excludes interest payments, recorded a surplus of Rs99.1 billion during the period under review. This is a significant improvement from the deficit of Rs890.2 billion in the same period last year. The surplus reflects a slowdown in the growth of non-markup expenditures.
  • The current account deficit has narrowed down by 76.1% to $3.3 billion during July-April FY23, in contrast to a deficit of $13.7 billion in the same period last year. This improvement is attributed to a decline in the merchandise trade deficit.

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