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More than the opposition or bitter critics of the PTI-led coalition government, it is Prime Minister Imran Khan’s cabinet colleagues who seem to be scrutinizing with a fair degree of disbelief the projected growth rate of nearly 4 percent for the outgoing year. Most of the ministers who commented on the matter with statistical evidence rather than appearing to be explaining the ‘feat’ to the doubters sounded as if they were trying to overcome their own doubts about the National Accounts Committee’s calculations.

Ironically, this is what the new Finance Minister Shaukat Tarin had to say in a TV interview about the government’s economic performance to date just days before he joined the government: We don’t know where the economy is heading [...]

Speaking on another TV show, he had said that achieving Pakistan’s current economic goals was a difficult task, but not an impossible one.

“If the Federal Board of Revenue (FBR) does not increase its revenue to 15%, then the country will run out of money to spend. The FBR will have to bring revenue to 20% in 5-7 years [...] otherwise the country will not be able to achieve an economic growth rate of 7-8%,” he added.

But after the projected growth rate was announced by the NAC the other day, Tarin had a totally different perception of the national economy. He said: Pakistan witnessed a strong V-Shaped growth despite being in a tough International Monetary Fund (IMF) programme.

“Economic growth has appeared along with stabilization due to the government’s focus on certain targeted sectors such as housing, agriculture, industry and exports. The projection of 3.94 percent GDP growth rate which provides hope that if we move forward towards growth then maybe the next year we might have 5pc growth and more than 6pc the next year after that,” Tarin added.

The National Accounts Committee (NAC), a body having representation of all the stakeholders, including provincial officials of crop reporting services, bureau of statistics and senior economists has estimated that economy will grow at 3.94 percent in the year 2020-21.

Energy Minister, Hammad Azhar, explaining the seemingly ‘unrealistic’ growth rate anticipated despite Covid-19 having significantly disrupted the economy used the following recorded statistics to overcome his own doubts: Large-scale manufacturing grew by 9pc during the first nine months of the current year; monthly average export remained at over $2bn for seven consecutive months; foreign exchange reserves touched $23bn, the highest in five years since December 2016; remittances witnessed a growth of 39 percent in the current year in July-April to $24.2 billion with monthly average inflow of over $2 billion for 11 consecutive months; the rupee appreciated by 9 percent since August 2020 from Rs168 to Rs153 and rated as the best performing currency in the last three months; current account had a surplus of $959 million in July-Mar 2021 and; sale of cement and automobiles increased during the period under review while better crop prices benefitted the farmers’ community.

State Minister for Finance and Revenue Dr Waqar Masood Khan had even more convincing arguments to set at rest his own doubts as according to him all the right questions were asked during the NAC meeting and were subsequently addressed by the relevant people.

He said the earlier SBP projection of 3 percent growth of GDP was based on old crop production figures. The revised figures of crops especially over 27m production of wheat was shared with the meeting’s participants; the provincial crop reporting services of agriculture departments shared the updated figures with the NAC meeting.

“No one was expecting the highest-ever growth figures in wheat,” he said as if quoting the clincher.

About the estimates of IMF and World Bank, Dr Waqar said that multilateral donors keep growth rates on the lower side. According to him, in the last IMF programme growth rate was projected at 1.5pc to 2pc but the economy actually grew at 4pc in the year 2013.

He said that multilateral donors don’t have their own data and rely on the data provided by government of Pakistan.

“Federal Board of Revenue posted a growth of 6pc in the first six months while it grew at 16pc in the four months of the second half. The growth in revenue collection is showing that economic activities are going on in the country,” Dr Waqar said, seemingly removing any remaining doubts in his own mind about the projected ‘improbably’ high growth figures.

As expected, the projected ‘unexpected’ rate of economic growth in the current

fiscal year has triggered a heated debate in the country, with the government coming up with a string of justifications to prove authenticity of the data involved and the main opposition leader expressing doubts over the calculations of government’s economic team and the other detractors of the government rejecting the figures out of hand as ‘fudged’.

When the year 2020-21 began, the IMF had estimated GDP growth at 1 percent and SBP at 2 percent; then SBP improved its forecast to 3 percent and the IMF to 1.5 percent. The improvement in projections came with the arrival of fresh data.

Dr Ashfaque Hasan Khan, former Economic Advisor in Prime Minister Shaukat Aziz’s government, a bitter critic of the present government’s economic policies holds the same view as Dr Waqar Masood Khan about the growth figures that the IMF had estimated for the outgoing year, but he said the projected rate for the 2020-2021 fiscal year has been calculated on the basis of a very low base and that was why in his opinion the NAC calculations show a fairly healthy growth rate.

He said in order to get a more realistic figure for the same, one could add the growth rate of the last year which was almost negative with the one projected for the current fiscal and average out the two which would give an approximately more authentic growth rate of about 1.5 to 2 percent for the outgoing year.

He said he had estimated the growth rate for the outgoing year at around 3 percent because of the failure of the cotton crop. He appeared to be pleasantly surprised by the reports of bumper wheat crop and hoped the estimates are genuine because in case they are not, not only the government would face the ignominy of revising downward the growth rate but the country may also face the possibility of importing wheat in order to bridge the ensuing yawning gap between availability and the actual requirement.

The primary evidence for an optimistic projection is the acceleration in the growth rate of the large-scale manufacturing sector, buoyancy in cement sales and petroleum products and recovery in automobile sales plus signs of recovery in agriculture sector.

However, according to an earlier assessment made by a well-known economist, Dr Hafiz A Pasha, there is a catastrophic drop in the cotton output. Arrivals have plummeted by as much as 34 percent up to January 2021. This alone could reduce the growth rate of the major crop sector by 6 percent and impact negatively on the GDP by 0.5 percent. Further, the downstream implications on the output of textile sector would be significant.

In his opinion, the growth rate of the large-scale manufacturing sector appeared artificially high because of the depressed level of output in the corresponding period of 2019-20. With respect to 2018-19 the increase is only 2 percent. Further, the growth is not yet broad-based. It is concentrated in a few industries like cement, cigarettes, fertilizer and pharmaceuticals. Output continued to decline or show low growth in industries such as petroleum refining, cotton yarn and cloth, steel products, vegetable ghee, beverages, consumer durables, etc.

For the demand side of the economy, Dr Pasha’s assessment said private investment had yet to show recovery. Import of machinery had shown little growth. Development spending releases were down. More substantively, real household consumption expenditure was likely to show limited growth because of the prevailing high levels of unemployment and poverty.

According to the same assessment, the rate of inflation would remain unchanged in the range of 7 to 9 percent during the remainder of 2020-21. And as the world economy recovered, there would be a tendency for commodity and other product prices to rise globally. This could mean higher prices of palm oil, iron and steel and fertilizer, etc. Overall, strong measures would be required to keep the inflation rate in the range of 7 to 9 percent.

According to Dr Pasha, there has been a ‘healthy’ growth in revenues. The growth rate will jump up substantially given the lower base of revenues in 2019-20 after the Covid-19 attack. But even with this jump there was likely to be a shortfall in FBR revenues of over 400 billion rupees in 2020-21.

Achievement of the target of restricting the budget deficit to 7.1 percent of the GDP in 2020-21 would require that in absolute terms the size of the deficit remained largely unchanged. Clearly, the remaining months of the ongoing financial year would require stronger budgetary control.

Copyright Business Recorder, 2021

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