Economic Survey Confirms Pakistan’s GDP Growth Was 2nd Highest in 17-Years

The economy of Pakistan rebounded from the coronavirus pandemic and continued to post a V-Shaped economic recovery with real GDP growth of 5.97 percent, the highest since 2005.

According to the Pakistan Economic Survey 2021-21 released on Thursday, the economy rebounded in FY22 from the pandemic (0.94 percent contraction in FY20) and posted a growth rate higher than the 5.74 percent recorded last year (FY21).

“This high growth, however, is also accompanied by external and internal imbalances, as has been the case historically with Pakistan’s economy. However, external circumstances also played a critical role this time. These circumstances have placed almost all economies of the world in shambles,” the survey said.

 

A highly transmissible Omicron variety, changes in Afghanistan’s government after the withdrawal of US troops sparked and the Russian-Ukraine conflict started in Feb 2022, all of these have upended the global economic picture, it said.

The survey noted that financial and commodity markets have felt shockwaves resulting in a surge in energy and food prices which threaten to remain further elevated. The exceedingly uncertain outcome of the crisis is another challenge for developing economies, particularly for Pakistan.

For FY22, real GDP (GVA at basic prices 2015- 16) posted a growth of 5.97 percent on account of 4.40 percent growth in Agriculture, 7.19 percent growth in the Industrial sector, and 6.19 percent growth in the Services sector. For FY22, GDP at current market prices stands at Rs. 66,950 billion showed a growth of 20.0 percent over last year (Rs. 55,796 billion). In the dollar term, it remained at $383 billion.

The per capita income was recorded at $1,798 in FY22 which reflects an improvement in prosperity due to the fact that economic growth per person improved.

Sector Wise Growth

The agriculture sector posted growth of 4.4 percent mainly due to 6.6 percent growth in crops and 3.3 percent growth in livestock. The growth in crops was recorded on account of 7.2 percent growth in important crops, 5.4 percent growth in other crops, and 9.2 percent growth in cotton ginning.

The industrial sector recorded a growth of 7.2 percent in FY22 compared to 7.8 percent growth in FY21.

During FY22, the services sector continued to post a significant growth of 6.2 percent as it posted 6.0 percent growth last year. The wholesale and Retail Trade industry posted a growth of 10.0 percent, mainly because its value addition is dependent on the output of agriculture, manufacturing, and imports.

Consumption

In Pakistan, household consumption is estimated on a residual basis due to the non-availability of the National Accounts on Expenditures approach. Household consumption has a significantly large share of GDP. This implies that household consumption remained intact even during high inflation. The higher shares of households spending fueled imports since domestic production could not meet growing consumers’ demand. Thus, bringing imported inflation.

With regard to the household private consumption expenditures, it was observed that even an increase in the interest rate and depreciation of Pak rupee exchange rate has not altered the consumption pattern in FY22.

This private consumption expenditure may happen on account of an increase in workers’ remittances and cash transfers to the low segment of society through the Ehsaas Cash Emergency Programme. Similarly, a slight decrease in the share of the Public Consumption in GDP was observed.

However, the growth rate in Public Consumption increased to 11.3 percent during FY22 mainly due to an increase in government consumption expenditures as well as an increase in interest payments.

Investments

In FY22, the Gross Fixed Capital Formation (GFCF) stood at Rs. 8,992 billion against Rs. 7,217 billion in FY21, thus, posting a growth of 24.6 percent as compared to 16 percent growth in FY21.

During the same period, the GFCF in the private sector was estimated at Rs. 6,704 billion against Rs. 5,557 billion in FY21 showing a growth of 20.6 percent. The GFCF in Public Sector remained at Rs. 481 billion during FY22 compared to Rs. 419 billion last year registering a growth of 14.9 percent. Likewise, the GFCF in the General Government sector during FY22 stood at Rs. 1,808 billion compared to Rs. 1,241 billion during FY21, posting a growth of 45.6 percent.

Way Forward

The survey notes that Pakistan’s economy faces several severe challenges. Inflation is running too high, the prospects for future growth in potential output are challenging. The fiscal deficit is at a level where its financing is becoming challenging.

Further, high trade deficit is leading to external imbalances putting extra pressure on foreign reserves and on the exchange rate. Economic growth seems to be slowing down next year. Moreover, high uncertainties are restricting market confidence.

In the short run, Pakistan is confronted with the challenge to finance its external finance requirements stemming from current account deficits and foreign debt servicing. The successful conclusion of the seventh review of Pakistan’s reform program which is supported by an IMF Extended Fund Facility arrangement is on the right direction.

The government is very much committed to ensuring stability and confidence in the economy. A stable fiscal policy with a higher, growth-promoting path for PSDP, based on physical and human capital development will be obligatory. Likewise, subsidies targeted to stimulate the development of innovative industries and services will be essential. On the revenue side, growth-oriented revenue policies will be helpful.

There is an intense need of creating an environment conducive to investments. Further, the investment must be capable of considerably augmenting the share of GFCF in GDP as well as increasing the efficiency to create additional welfare.

Investors and consumers need to be convinced of a long-term sustainable and inclusive growth project that inspires confidence in Pakistan’s economic future and that induces them to take initiatives in their own and in the country’s interest. Thus, well-functioning competitive markets are required.

There is also a need to continue policies that brought improvement in related sectors. For example, Prime Minister’s Agriculture Package and related agricultural policies remained more effective for better agriculture performance. Likewise, policies related to the energy mix and efficient energy supplies. Furthermore, there is also a need for stable legislative and political culture.

As a result of these, it is expected that potential output growth will be upgraded, resulting in higher employment and real income growth. It will also create additional capacity for exports and import substitution and a stable exchange rate environment.



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