Lahore : The economy, as indicated by indicators for first quarter of the current fiscal year, has been reflecting strong performance and reversal of some of the negative trends which were witnessed in FY 2017.
More significantly, GDP growth target of 6% this year seems on track and may even be surpassed, said a statement issued by the Finance Ministry here Wednesday. Exports, which had registered a negative growth of 1.3% in first half of 2016-17 have returned to growth zone. Exports during July September FY 2018 posted a healthy growth of 12.4% as compared to the same period last year. Imports during first quarter increased by 25 %, however, month-on-month basis growth in imports have begun to decelerate. Imports increased by 51.6% in the month of July which decelerated to 9% in August and 22% in September. Workers’ remittances have returned to growth zone showing an increase of 2.3% during July October 2017, the statement said adding that the current account deficit for the period July-October 2017 showed an improvement of 4% as compared to March-June period of last year. Evidently, the recent pressure on external account was transitory and is likely to peak out this year as various energy and infrastructure projects are completed by June 2018.
FDI inflow during July-October FY 2018 was $ 940 million compared to $ 539 million during the same period last year, registering a massive growth of 74.4% while tax revenue collection in Q1, 2017-18 increased by 20% with fiscal deficit stands at manageable level and was lower than the same period last year, signaling that fiscal consolidation is on track this year.
The LSM growth during Q1, 2018 increased by 8.4% against 1.8 percent last year while cotton output this year is projected at 12.6 billion bales which is 17.8% higher than last year. Rice output this year was projected at 7.28 million tons which is 6.3% higher than last year and sugarcane output is projected at 79.31 million tons which is 7.8% higher than last year.
Therefore despite challenges, S&P in its rating report on October 25, reaffirmed Pakistan ‘B’ short term and long-term ratings with Stable Outlook and acknowledged that Pakistan’s external account challenges were short-term and will recede within two years’ time.
According to Organization of International Chamber of Commerce and Industry (OICCI) survey released this week, Business Confidence in Pakistan has improved to 21% in November 2017 as compared to 13% in May 2017 owing to improvement in overall economy, increased consumer demand, better business alliances, decline in energy shortfall, decrease in fuel prices and low inflationary pressure on various other products. According to the statement, there had been some criticism lately, mentioning weakening of macroeconomic stability in the context of current and fiscal accounts’ deficit in 2017.
It cleared that the incumbent government had inherited a fragile economy, however, soon after assuming responsibilities, it launched a home grown program of economic reforms and in the period of four years achieved a remarkable economic turnaround which is recognized by international community.
It said that the GDP growth of 5.3% last fiscal is the highest in the last ten years while Tax-to-GDP ratio increased from 10.1% in 2013 to 12.5% in 2017, with fiscal deficit been reduced from 8.2% in 2013 to 4.6% in 2016. However, the fiscal deficit in FY17 increased to 5.8% and the major contributors were provincial deficit 0.9%, higher project aid 0.4% and lesser FBR revenue collection 0.5% of GDP.
During this period FBR tax collection registered a cumulative growth of 77% between FY2013-2017 while the size of development spending has increased by 300% in four years. Inflation has been brought down in the range of 4 – 5% in FY2017 from the average of 12 percent between 2008-2013 whereas the policy rate was at a historic low of 5.7% down from 9.5% in FY2013. Pakistan’s foreign exchange reserves, which were US$11.02 billion including SBP’s US$6 billion in June 2013, mounted to a healthy level of about US$19.8 billion with SBP reserves at US$13.6 billion.
Current account deficit was recorded at US$12.4 billion during FY17 as compared to US$4.9 billion in FY16. It was mainly due to increase in imports of machinery, industrial raw material and petroleum products. These imports are enhancing productive capacity of the economy for higher output and exports in future.
The statement clarified that as for stagnancy in exports, it was largely due to global economic conditions, low commodity prices and severe bottlenecks in the energy and infrastructure sectors of the economy as well as adverse security conditions in the country. Workers’ remittances which remained stagnant last year due to adverse economic conditions in the Middle East, stringent USA regulations and impact of Brexit, have returned to growth zone.
The statement added that the security situation has significantly improved, uninterrupted energy was now being provided to the industrial sector and global economic outlook is positive while the government also provided export package of Rs.180 billion which has started showing results.