Minister credits PM for the ‘V-shape economic recovery’; surpassing annual economic growth target of 2.1%
Pakistan’s economy grew nearly 4% and surpassed the annual target on the back of strong private consumption, but the “black hole” of the power sector and loss-making enterprises remain obstacles to future economic prospects, Finance Minister Shaukat Tarin said on Thursday.
Unveiling the Economic Survey of the third year of the PTI government, the minister vowed to exploit the full potential of the special economic zones (SEZs) being set up under the China-Pakistan Economic Corridor (CPEC) to achieve “higher and sustainable economic growth”.
The government missed its annual targets of inflation and investment-to-GDP ratio — two critical areas that point out the suffering of the people and the susceptibility of attaining high economic growth rate in the absence of investment in the economy.
“The government had set a 2.1% growth target and the IMF had predicted an even lower number but decisions by this government such as incentivising manufacturing, textiles, construction and interventions in agriculture have helped the economy recover,” Tarin elaborated.
According to the survey, Pakistan has posted a provisional growth rate of 3.94% in the fiscal year 2020-21 on the back of growth in the industrial and services sector.
The farm sector grew around 2.8%, which is equal to the target.
The industrial sector registered a growth of 3.6% against a target of 0.1%, while the services sector, which has the largest share of about 60% in the economy, grew 4.4% against the target of 2.6%.
Unlike in the past when the finance ministers used to spend more time on churning numbers, Tarin spoke about the overall prevailing economic situation and the challenges that the economy still faced like failure to privatise, inability to bring an end to circular debt and “negligence” in using the potential of the CPEC SEZs.
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The minister credited Prime Minister Imran Khan for the “V-shape economic recovery” and surpassing the annual economic growth target of 2.1%.
“Private consumption has a significantly large share in GDP. This large share implies that Pakistan’s economy is a consumption-driven economy,” read the Economic Survey 2020-21.
Growth in private consumption remained 17% in this fiscal year in comparison with 4% last year. On the other hand, growth in public consumption remained 11.4%, lower than 19.3% recorded last year.
The minister outlined the power sector circular debt and failure to reform the public sector enterprises as key challenges in addition to inflation that is expected to remain high due to high international commodity prices.
“The government wants to manage the power sector. It is a black hole for us,” the minister said.
He added that there was no significant improvement in reducing electricity losses and ensuring high recoveries of the bills.
“It will take six to eight years to end the circular debt.”
The minister said about Rs200 billion and Rs250 billion would be added to the circular debt in this fiscal year, which was lower than the estimated Rs450 billion.
“DISCOs [distribution companies] should be made efficient and privatised,” he added.
“Increasing tariffs is not the solution as it hits the industrial sector and causes inflation. The tariff increase will make the industry uncompetitive.”
Tarin noted that CPEC helped in establishing SEZs, however, they did not attract investors.
“We should take advantage of the SEZs. China is going to outsource 85 million jobs due to sunset industries.”
Tarin said the country needed to enhance exports, foreign direct investment and maintain remittances to increase the inflow of dollars.
The state-owned entities are draining money. Moreover, DISCOs, the PIA and the Railways are facing immense losses.
The minister said every government that came to power raised the privatisation slogan but no agreement had been made so far, except privatisation of the banks.
“We are making a board of prominent professionals under the Privatisation Commission and will give 15 entities under them,” Tarin said. These 15 entities will then be removed from the line ministries.
“The powers that the politicians and bureaucrats enjoy are the reason behind failure of the privatisation programmes.”
Tarin announced the decision to revive Sarmaya Pakistan Limited Company, which was the brainchild of former finance minister Asad Umar but had been buried by Dr Abdul Hafeez Shaikh, who replaced him.
The minister said for the next year, the “big news” would be incentives for the poor.
“The poor man has been crushed in this stabilisation phase because the dreams we have shown them have been of a trickledown economy. This can only happen when growth is sustainable and continuous for 20-30 years,” he said.
Tarin, however, emphasised that this growth should not be based on borrowing.Inflation.
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The headline inflation measured by the Consumer Price Index (CPI) was recorded at 8.9% during July-May period against the annual target of 6.5%.
The minister said that the country had become a net importer of agricultural products and the prices were bound to go up due to the surge in prices in the international market.
However, he added, the increase in the domestic prices was far less than that in the international market.
“Crude oil prices rose by 119% and the government increased the prices by only 32%,” he noted.
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“The wheat price rose by 29% and we had to raise it 29% as well.”
He maintained that palm oil and soybean oil prices increased by up to 119% in the international market but in Pakistan the increase was only 22%.
Tarin said the government was trying to control inflation.
“We have to enhance production; hence, the budget focuses on agriculture.”
The economic survey showed that before the start of the Covid-19 pandemic, the country’s population or 557 million people were employed.
This number decreased around 20 million to 35 million after lockdowns were imposed in March 2020, it added.
In July 2020, the government announced a package for the construction sector. Thus, the opening of sectors in which daily wagers were working along with fiscal stimulus and monetary measures made the economy recover.
“As a result, people started working again and the total number of employed people rose to 52.5 million,” said Tarin.
The government did not publish poverty figures in the survey, although the United Nations multidimensional poverty index showed 38.3% poverty in Pakistan.
The minister said the country needed two million jobs per year and the number of taxpayers should be broadened through the use of technology.
Speaking on the occasion, Adviser to the Prime Minister on Commerce and Industries Razak Dawood said exports had increased and reached $22.5 billion by May end.
“Our exports should focus on value-addition and diversification.”
Exports are expected to reach $25 billion by June end.
“Export of textile garments, menswear, womenswear and knitwear all grew substantially,” said Dawood.
“Next year, we will focus on engineering, chemicals and other sectors,” he added