The consolidated federal and provincial fiscal operations data for fiscal year 2024-25 assumes nominal Gross Domestic Product (GDP) at 124,150 million rupees (defined as total market value of goods and services minus imports which declined marginally from 55198 million dollars July-June 2023 to 54798 million dollars July-June 2024 and unadjusted for inflation for the year), which is 17 percent higher than the nominal revised growth in 2023-24 of 106,045 million rupees.
Fiscal year 2022-23 nominal GDP was budgeted at 78.3 million rupees also reflecting a rise of 17 percent in comparison to the previous year’s 67 trillion rupees (revised estimates).
Miftah Ismail presented the budget speech in June 2022 and argued that “a fundamental problem of our economy has been that the rate of economic growth remained 3-4 percent which is inconsistent with the growth rate of our population.
In contrast to it, when the growth rate exceeded 5 - 6 percent, it led to uncontrollable current account deficit. The reason behind this phenomenon is that to advance the economy we have been giving concession to affluent classes. This used to result in increase in imports while exports remained stagnant…… A gigantic challenge before us is to achieve growth without current account deficit. Next year at least 5 percent growth will be achieved without a balance of payment problem.
During the next year, GDP will be increased from 67 trillion to 78.3 trillion rupees.“ While he did highlight two important factors that require change – GDP growth must exceed population growth and concessions to the affluent class must end – yet his focus on nominal instead of real GDP growth is baffling; besides his projections, based on budgeted expenditure and revenue, did not pan out soon after the budget speech as Ismail failed to resist challenges to implement reforms agreed with the International Monetary Fund (IMF) from his own party leadership.
Actual growth rate in 2022-23 was negative 0.17 percent though in all fairness Ishaq Dar’s contribution to this decline was considerably more than Miftah Ismail’s given the former’s constant interference in the Finance Ministry prior to his formal appointment as the finance minister end-September 2022.
Dar’s refusal to implement fiscal and monetary policies agreed with the Fund earlier that year led to a suspension of the programme and the looming threat of default compelled the then Prime Minister Shehbaz Sharif to bypass Dar and pledge the implementation of the stalled IMF conditions leading to approval of the nine-month-long Stand By Arrangement. Inexplicably, Dar was not asked and did not opt to resign. It is little wonder that growth for the year was negative 0.22 percent and inflation 25.04 percent.
Dar presented the budget for fiscal year 2023-24 and projected a nominal GDP growth rate of 105,817 billion rupees and real growth rate of 3.5 percent which he claimed was a modest target adding that “despite the country heading towards general elections, the budget has been framed in a responsible manner rather than an election budget.”
Growth achieved was 2.5 percent (2.4 percent as per the IMF) and the consumer price index was a high of 28.73 percent for the year which explains the rise in the nominal GDP though the difference between the actual versus budgeted nominal GDP growth was a mere 0.21 percent.
The difference between the nominal GDP growth budgeted for the ongoing fiscal year 2024-25 and the revised estimates for the year before was in total terms 18,105 million rupees which in percentage terms is again the magical 17 percent.
Actual growth rate for the current year was budgeted at 3.5 percent which as per the Monetary Policy Committee would be between 2.5 to 3.5 percent with skeptics maintaining that it would be closer to the lower projection as the higher projection is in deference to the stakeholders’ optimism rather than any unbiased assessment.
And the inflation average for the first seven months of the current year as per the Pakistan Bureau of Statistics (PBS) was 7.83 percent, a massive decline from the average of the year before.
This optimistic assessment is challenged by the Finance Division’s monthly update and outlook publication with the six monthly assessments in industry as well as agriculture and services sector.
Nominal GDP rise indicates that prices have risen while real GDP rise indicates that output has also risen. So what is the actual outcome for the current year? Large scale manufacturing (LSM) sector as per the Finance Division registered negative 10.30 percent July-June 2022-23 and only 0.92 percent in 2023-24.
Data for LSM is only available till November 2024 and shows that in July-November 2023 LSM registered negative 1.9 percent while in the same period in 2024 it registered negative 1.25 percent. This leads one to assume that the bulk of the rise in real GDP last fiscal year can be attributed to a decline in inventories rather than a rise in output.
The Update further notes that: “Agriculture has shown a growth of 1.15 percent in Q1 as compared to 8.09 percent in the same period last year. The growth in important crops contracted by 11.19 percent in Q1 due to the high base effect in the crop sector of the last fiscal year and the decline in the crop production of cotton (-29.6%), rice (-1.2%), sugarcane (-2.2%) and maize (-15.6%)…..These declines were driven by delayed sowing due to climate variations, shifts in crop acreage, and lower wheat prices, which affected farmers’ purchasing power….. In Q1 FY2025, the (service sector growth moderated to 1.43 percent from 2.16 percent last year.
The drop in services growth is largely attributed to a slowdown in wholesale & retail trade and transport & storage.“
Thus, the GDP contributing sectors (industry, agriculture, and services) are performing worse than last year as per government data during the first quarter. Even if the second, third, and fourth quarter figures show an improvement, real or through innovative data manipulation, the growth rate would not be higher than 2.6 to 2.7 percent and perhaps that too on the back of lower inventories rather than higher output otherwise it would be closer to 2 percent.
To conclude, Pakistani budget formulators typically raise nominal GDP by 17 percent each year, but real GDP varies markedly – from negative 0.22 percent in 2022-23 to 2.5 percent 2023-24 and for the current year it is projected at 3.5 percent (revised downward to 3.1 percent) while the GDP nominal value is expected to rise to 124,150 million rupees this year from 106,045 million rupees in 2023-24.
This projection implies that in spite of a massive decline in reported inflation nominal GDP was budgeted to rise by 17 percent again while the real GDP growth was perhaps projected on the back of lower inflation (manipulated by between 7 and 8 percentage points as per independent economists) and higher output though government data is not supportive of this claim.
Copyright Business Recorder, 2025
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