The inconsistency was visible in Dar's presentation of the economic scorecard of the outgoing fiscal year. He demanded all credit and applause for indicators that improved and was tight lipped on poor performance. Nothing wrong in taking all credit for good performance, but he could have also owned the not-so-good performance. That was left for dharna, floods and previous regimes. Not that it was surprising, as this has largely been the ruling party's hallmark.
The economic growth increased to 4.24 percent from 4.02 percent. He stressed upon the GDP growth being highest in seven years but was not apologetic on it being short of the 5.1 percent target. Interestingly, the growth breakup shows better performance in areas where the estimates are based on surveys and guesstimates. The picture is rather sorry in areas where more sophisticated data gathering procedures are applied. But then, playing with numbers is also an art, and we are not saying the numbers are fishy.
In agriculture sector, crops grew by 1 percent with only 0.3 percent in important crops. On the flip, livestock sector where actual recording is a tough ask, the growth is 4.1 percent. Similarly, in the industrial sector, documented LSM grew by just 2.4 percent and small scale (largely undocumented) is up by 8.2 percent. The small scale sector is consistently growing over 8 percent for past many years and similarly livestock sector growth volatility is relatively much lower than crops and LSM growth in the past 7-8 years.
This is not to doubt the integrity of statistical measuring authorities but the trend is surely intriguing. Similarly, construction sector has rather opaque way of mapping growth and the sector has been growing by over 7 percent in the last two consecutive years. Livestock, construction and small scale manufacturing sectors collectively constitute 15.6 percent of GDP and attributed one fifth of growth.
In services sector, major achievers are finance and insurance sectors and general government services - both are interlinked and their joint interests are chief reason for subdued private sector credit. Banks' asset quality has remarkably improved coupled with higher returns owing to excessive deployment in low risk high return longer tenure government's bonds (PIBs).
Dar proudly announced the improvement in government domestic debt maturity profile through this exercise; but he was silent on the additional debt servicing cost and bad timings of PIBs issuances. The big banks have booked 3 years papers at over 12 percent yield last year with one year paper yield coming down to 6-7 percent today. Did the government not anticipate falling interest rates in 1HFY15 when banks were busy in pocketing PIB yields? Who is responsible for over Rs 100 billion incremental annual interest payment due to replacing t-Bills by PIBs?
The general government services' 9.4 percent growth is attributed to higher salary and low inflation. It constitutes 7.4 percent of GDP and is contributing 17 percent of growth in FY15. Increase salaries of government employees in FY16, irrespective of their performance, GDP will grow for sure. Higher government spending leads to higher financing of fiscal deficit from banking system and leaves less for private sector to borrow and to generate employment.
He was trumpet on net negative growth in government borrowing from the central bank, but kept mum on its repercussions, as the onus largely fell on commercial banks which happily embraced to the bonanza. But in the process, private sector investment is crowded out which is deemed to be the engine of growth.
The need is to curtail fiscal deficit which is falling but there is still a long way to go. He didn't give many reasons for FBR falling short of its initial target by Rs 200 billion. He was silent on the overly optimistic target next year. He missed the tax to GDP target of 11.6 percent of GDP by 50 bps, yet believe it to increase to 13 percent by the time PML-N concludes its term.
Nonetheless, with low growth in major employment generating sectors (such as LSM), the unemployment rate is magically down by 0.2 percent. Quality of growth is poor and labour force is fast growing, God (or Dar) knows what is generating employment. For record, the number of active labour force actually decreased in the outgoing year. Don't ask us how.
It's all hunky-dory as unemployment is falling, inflation is at multiyear low and due to that the GDP loss due to war is on a decline. The GDP per capita crossed $1,500 mark from $1,388 in the last year - is it due to higher economic activity or an overvalued currency?
The trade figures are not supporting higher economic activities as fall in exports at 3 percent (in 10MFY15) is more than 1.6 percent decline in imports. Finance minister reasoned lower exports due to depressed commodity prices - not mentioning that had the GSP plus status not being granted, exports would have been further squeezed, not expressing concerns on Pakistan losing share in its low value added textile exports to China, being silent on large quantum increase in other exports and the list goes on.
In case of imports, the higher number is a positive according to the chartered accountant as imports in machinery grew by 10 percent. But barring machinery, petroleum products and palm oil (which fell due to lower oil prices), imports are up by 7 percent in 10MFY15. He didn't bother explaining this anomaly and he showed no concern on the fear of imports replacing domestic manufacturing.
Nonetheless his moral is high and he sounds confident on meeting the targets in the medium term. He is optimistic to bring the energy gap down to zero by 2017 end as 7003 MG will be added on already executing projects while another 3600 MW may come from LNG based power plants. He thinks (rightly so) if 10,000MW are added, Pakistan will be able to reach 7 percent growth in 2017-18. But will the energy gap be reduced? Or the higher purchasing power (due to low inflation) and higher GDP per capita will stress on uptick in demand to be met by higher imports? Will his target of over $20 billion foreign reserves by 2017-18 be a reality? Yes, it can be. But all depends on how the CPEC will progress. Let's be optimistic with Dar and hope for a high growth era to be a reality.
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