Economic Survey of Pakistan 2018-2019 highlights

Advisor to Prime Minister of Pakistan on finance, Dr. Hafeez Sheikh launched Economic Survey for the year 2018-2019 on 10^th June 2019.

Following are the salient features;

• External sector has shown some improvement after dismal performance in FY-2018.
• Policy intervention has reduced current account by 27 percent to $11.56 billion during July-April FY-2019 compared to expansion of 70 percent to $15.9 billion of the corresponding period last year.
• Imports have been restricted by 5 percent to $ 44 billion compared to $46 billion last year.
• Trade deficit reduced by 7.4 percent to $ 23.9 billion against $25.8 billion last year.
• Remittances improved by 8.45 percent to $ 17.8 billion against 16.4 billion last year
• GDP growth in FY 2018 was 3.3 percent, on the back of Agriculture at 0.85 percent, Industry 1.4 percent and Services 4.7 percent.
• The major factor in limiting the growth of Agriculture was water shortage both for Rabi and Khariff crops which badly impacted production of major crops such as Cotton, Rice, and Sugar, which remained behind their target productions.
• The cotton crop registered a decline of 17.4 percent to 9.86 million bales.
• Rice production remained short by 3.3 percent to 7.2 million ton.
• Sugar production stood at 67.2 million ton and witnessed a decline 19.4 percent.
• Wheat crop showed some nominal growth of 0.5 percent to 25.19 million ton.
• Maize crop showed good improvement of 6.9 percent to 6.3 million ton.
• Industrial sector showed moderate growth of 1.4 percent due to decline of Large Scale Manufacturing Sector (LSM) by 2.06 percent due to reduced aggregate demand.
• -Mining and construction sector growth declined by 1.9 and 7.6 percent respectively.
• Services sector was affected by the decline in Commodity Producing Sector and registered a less than expected growth at 4.7 percent.
• General government services and other private services contributed to services sector by surpassing the target and registered a growth of 8 percent and 7 percent, respectively.
• Fiscal deficit despite increased interest payment was managed at 5.0 percent of GDP during the first nine months of CFY2019.
• The FBR collections remains lower due to court stay on mobile phones, reduction in personal income tax rates and reduced imports.
• Government has separated the tax policy function of FBR from tax administration.
• Creation of Specialized Tax Unit for foreign assets.
• Tax broadening measures.
• Extensive use of information technology for data mining, detection of under reporting, spotting tax evaders and get more people into tax net.
• These efforts have helped in expansion of tax filers to more than 1.87 million.
• During July-May, FY-2019 inflation increased to 7.2 percent due to reversal in global fuel prices, whose impact has been translated on domestic prices as well exchange rate adjustments.
• The Food inflation during this period remains low to 4.23 percent.
• The SBP has adopted contractionary monetary policy stance by raising discount rate to 12.25 percent to anchor inflationary pressures and to stabilize the macroeconomic situation.
• The flows of credit to private sector have seen expansion of Rs581 billion during July – 26 April 2019 showing year on year growth of 15 percent over last year.
• The agriculture credit disbursement increased by 21 percent to Rs.805 billion during July-March FY 2019 over last year.
• The actual performance of economy next year will be seen in due course of time in view of various initiatives in the field of housing, construction, SME, information technology and tourism as well as strong expansion in credit to private sector and uninterrupted supply of gas and power at competitive rates.
• The energy sector has also shown improved performance during this year.
• The installed capacity improved by 2.5 percent to 34,282 MW compared to last year 33433 MW, while generation increased by 2.1 percent to 87324 GWH from 85552 GWH.
• The government is targeting to create 10 million jobs in five years. The private sector will play a key role in creation of jobs supported by the government. The Key areas are;
• Naya Pakistan Housing Program by building 10 million houses.
• 10 billion Tsunami-Government country wide tree plantation Program
• National Financial inclusion Strategy to promote SMEs and digitization of Financial services
• Investment in tourism will help in job creation through development of neglected areas
• For the youth the government has launched Kamyab Jawan Program. This program will provide low cost loans to the youth for establishing small businesses enterprises.

Sector-wise growth rates:

• Agriculture: 0.85 per cent (against target of 3.8pc)
• Industry: 1.4pc (against target of 7.6pc)
• Services 4.7pc (against target of 6.5pc)

Revenue collection

• Total revenue at Rs-35837 billion (9.3 percent of GDP) showed almost 0 percent growth from July-March 2019, while growth in total expenditures was 8.7 percent. The fiscal deficit was recorded at 5pc of the GDP compared to 4.3 percent in the corresponding period last fiscal.
• “Decelerated performance of total revenues primarily was due to marginal growth of 1.8% in tax revenues and negative growth of 16.7% in non-tax revenues.
• The Federal Board of Revenue’s tax receipts from July-April 2019 remained at Rs-2976 billion against Rs-2,9225 billion in the corresponding period last year, registered growth of 1.8%.
• “Actual tax collection during first 10 months of the CFY remained at 67.7% of revised target of Rs 4,398 billion,” the document said.

• Provincial revenue collection rose by 1.5pc from July-March 2019.

Expenditures

• The government’s total expenditure increased by 8.7% from July-March 2019 to Rs-5506.2 billion (14.3% of GDP) against last year’s spending of Rs-5063.3 billion (14.6% of GDP).
• Current expenditure posted growth of 17.7% to Rs4798.4bn (12.4% of GDP).
• The federal and provincial governments’ current expenditures grew by 19.9% and 13.7% respectively during the period under review.
• Development expenditure decreased to Rs-655.9 billion this fiscal compared to last year’s expenditure of Rs-993.3 billion, exhibiting 34% negative growth compared to 23.6% positive growth recorded last year.
• The Public Sector Development Program share in total development expenditure stood at 88% or Rs-578.5 billion in the first nine months of the fiscal year. The same period last year saw Rs-931.4 billion expenditure.
• This year’s PSDP expenditure saw a 37.9% decline, while last year witnessed 24.7% growth in PSDP spending.
• The federal and provincial PSDP decreased by 14.5% and 52.2% respectively during July-March 2019 compared to the same period last year.

Deficits

• According to the PES, exports fell by 1.9pc despite exchange rate depreciation, while imports declined by 4.9pc.
• “This helped in reducing the trade deficit by 7.3pc during July-April FY18-19, while it had shown an expansion of 24.3pc during the corresponding period last year,” the document stated.
• The current account deficit contracted by 27pc from July-April 2019, while it had expanded by 70pc in the corresponding period last fiscal year.
• “Workers’ remittances played a major role in containing the current account deficit to 4.03pc of GDP,” the report said.

Inflation

• The Consumer Price Index witnessed a rising trend in fiscal year 2018-19. It increased to 5.8pc in July 2018 after remaining sticky at 5pc for two months, and rose to 6.8pc in October 2018 “due to an increase in gas prices”, the PES noted.
• From July-April 2019, headline inflation measured by the CPI averaged 7pc against the 3.77pc measured in the corresponding period last year “on the back of the prevalence of some underlying demand in the economy, as well as continued pass through of exchange rate depreciation and higher fuel prices.
• Core inflation (non-food and non-energy) was recorded at 8.1pc compared to 5.6pc in the same period last year.
• “The rising input cost on the back of high utility prices and the lagged impact of exchange rate depreciation is likely to maintain upward pressure on inflation during the remaining period of current fiscal year. The impact will be more visible on nonfood prices while the food prices are likely to remain stable due to effective monitoring of prices and smooth supply of essential commodities by the federal and provincial governments,” the PES said.

FDI and remittances

• Remittances saw an 8.45% increase in July-April 2019 compared to 5.36% last year, reaching $17.88 billion in the first 10 months of the fiscal year against $16.48 billion last year.