“Political instability in the country also led to a huge increase in economic uncertainty”, rightly pointed out the Economic Survey released yesterday. The tone of the economic survey and its wordings are in contrast with the press conference on its release by the PML-N economic leadership. Perhaps, the ministers speaking at the conference did not deign to read the survey.
The economic recovery is V shaped with negative GDP growth in FY20 followed by two successive years of 5-6 percent growth. And the new government is wishing to have a “Nike logo” recovery of trying to have a target of another year of high growth. Earlier, the PM wished to have six percent growth which was later reduced to five percent. But they can ‘just do it’ on paper. The ground situation is portraying that the growth is likely to be restricted to 2-3 percent, if not to 1-2 percent. Pakistan may see a W shape curve.
It seems that the fiscal numbers – tax revenues– are based on the high GDP growth. And IMF may not agree to it. So, the government may have to revise the GDP growth. However, higher inflation may compensate for lower GDP growth in terms of managing revenue targets. The government was setting 11 percent inflation target whereas the average inflation for FY23 is expected to be nothing less than 15 percent. The government just wants to set not-realistic targets – just to make optics better.
Let’s see what numbers the government will reveal tomorrow. And how the last moment negotiations with the IMF materialize on the budget numbers. The outgoing year has shown a healthy growth of 5.97 percent. LSM is the top performer with double digits (10.4%) growth. That along with higher commodity prices helped FBR to achieve higher growth in tax collection. With imports slowdown, the next years target would be a challenge; but as said earlier, higher inflation would help to achieve it.
“This high growth, however, is also accompanied by external and internal imbalances, as has been the case historically with Pakistan’s economy”, aptly put the Survey. However, there are exogenous factors contributing to growing external imbalances. First almost all the global commodities went into super cycle and later the Russia Ukraine war has made the situation even worse.
Keeping the exogenous factors aside, the growth is mainly contributed due to the higher consumption. That was always the case. And in FY22, share of consumption in real and nominal GDP reached 99 and 96 percent respectively. With such numbers, higher inflation and unsustainable growth are natural outcomes. However, the saving investment gap in FY22 is still lower than what was the case in 2018 – the sitting ministers need to ponder on that.
The silver lining is that exports (goods and services) crossed 10 percent in terms of GDP. But the imports grew at an even higher rate. The problem is of negative net exports. And that in days of growing commodity prices is making things worse. The next year is to be a consolation and expect low growth with high inflation. While the sitting government – being only for one year (at max), wants to show higher growth – at least on paper.
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