After having set a target of 5% growth, Finance Minister Ishaq Dar unveiled on Thursday the Pakistan Economic Survey 2022-23 that showed GDP increase at a lowly 0.3%.

In what can easily be termed as one of the toughest years for Pakistan’s economy, Dar had his work cut out when he took over from Dr Miftah Ismail as finance minister last year.

What he saw during the next few months were devastating floods, a lingering programme with the International Monetary Fund (IMF) and months of political turmoil.

As he unveiled the outgoing fiscal year’s economic scorecard, Dar said Pakistan has already taken the tough reforms it needed.

“Any government that comes through polls can undertake tough political reforms,” said Dar. “We implemented them at the cost of political capital even though we took over mid-way.

“Despite all the constraints, including external and internal factors, we achieved GDP growth of 0.29% (provisionally). Agriculture, industry and services registered growth of 1.5%, -2.9% and 0.86%, respectively,” he said.

He argued against rupee devaluation in his press conference, saying those who advocate the currency’s fall also need to see if exports have risen in the last three to four years.

“You look at the Real Effective Exchange Rate and tell me what the rupee value should be. Two economists from Bloomberg have said the same thing,” he said, referring to a recent note that argued the rupee could appreciate if political turmoil in Pakistan ended, and the pending review with the IMF was revived.

“The economy has been marred by loss of confidence.

“But I can tell you that hoarders of dollars will end up losing money. The currency is undervalued due to artificial reasons and we are addressing the problems.

“We have taken administrative measures to curb smuggling of wheat and urea as well as foreign exchange,” he stressed.

Dar said the focus now needs to be on economic stabilisation.

“In 2013, when we assumed power, our aim was to ensure we address 3 Es — economy, energy, extremism.

“Now, we have expanded it to 5 Es — export, equity, empowerment, environment, energy.

“Similarly, had we not regained control (last year in April), the economy would have been in a far worse shape than it is now.”

Dar said Pakistan’s economy contracted in FY20, calling it a “base effect” for higher growth in the subsequent years.

“When the government took over last year, we were facing severe challenges. Our fiscal space had shrunk, and inflationary pressures remained high. The current account deficit was sky high, whereas our financing needs were also rising,” said Dar.

“Our biggest concern is Pakistan’s external account.”

Inflation

Dar said the more relevant figure for inflation would be ‘core inflation’, which has been lower than the headline CPI number.

“Higher international commodity prices, global supply-chain disruptions, damage to major and minor crops due to floods, currency depreciation, currency price adjustment are the major factors responsible for high inflation,” said Dar.

Current account deficit

Dar said despite making external debt payments, Pakistan has powered through and honoured its commitments.

“The cumulative current account deficit from July to April has improved. In the last 10 months of FY23, it has now reduced to $3.3 billion. This was very painful but much needed to protect sovereign commitments.”

The current account deficit has remained at a sustainable level, he said.

“We still have another two months to go,” said Dar.

Dar said the Pakistan Stock Exchange (PSX), formed after the merger of three markets in Islamabad, Lahore, and Karachi, has seen its market capitalisation erode in the last few years.

“Its market cap has gone down from $100 billion.”

Foreign Direct Investment

Dar said foreign direct investment (FDI) in Pakistan stood at $1,523 million in last 10 months of FY22, an amount that reduced to $1,170 million in the current fiscal year.

“The decline is due to the Ukraine war, Covid-19 and financial turmoil,” he added.

GDP per capita

SBP’s key policy rate

Dar said after SBP’s independence in setting the key interest rate, there is nothing a government can do.

“I may have a different opinion on it because this is a vicious cycle (of higher policy rate and low economic growth). Because of higher inflation, we have had to see higher policy rates.”

“The government prioritised national interest over political capital, and took measures to avert the looming threat of default.”