The Economic Survey 2010-11 projects the GDP at 2.4 percent in the current fiscal year against the target of 4.5 percent due to devastating flood and ongoing energy crisis. According to the Survey to be released tomorrow (Thursday) the agriculture sector is expected to grow by 1.2 percent against the target of 3.8 percent and overall industrial sector facing severe power and gas shortages is expected to decline by 0.1 percent against the targeted growth rate of 4.9 percent.
The services sector achieved a growth rate of 4.1 percent against the target of 4.7 percent mainly because of wholesale and retail trade, transport and communications sub-sectors. Investment declined by a whopping 4.5 percent and impacted negatively on the rate of growth through the multiplier effect - from 17.9 percent of GDP a year ago to 13.4 percent. The Economic Survey 2010-11 estimated 8 percent unemployment during the current fiscal year with the number of jobless increasing to 4.39 million of the total labour force of 54.92 million. Total employed were assessed at 50.53 million and 4.393 million were assessed as unemployed which is about 8 percent. The figures have worsened considerably as in the fiscal year 2010-11 unemployment was 5.5 percent. Analysts maintain that in the absence of organised labour exchanges especially in rural areas the actual number of unemployed is in all probability a lot higher.
Agriculture growth of 1.2 percent is expected to remain lower than the target. The major crops were hit hard by floods damaging cotton and rice crops, therefore this sub-sector is expected to post a negative growth of 4 percent against the target of 3.7 percent. Production of cotton in 2010-11 has decreased by 11.3 percent over the previous year, while rice production fell by 30 percent. However, wheat production is expected to record a 3.9 percent growth over last year's production levels. Minor crops are expected to post considerable growth of 4.8 percent.
Agriculture credit utilisation declined by 4.4 percent during July-December 2010-11 while fertiliser off-take declined by 13.6 percent in the same period. Both DAP and urea saw lower off-takes during this period due to increase in prices by 41.2 percent.
Large Scale Manufacturing (LSM) is expected to post a modest growth of 1 percent despite energy shortages and decline in foreign direct investment. According to Quantum Index of Manufacturing (QIM), July- March, negative growth was witnessed in food (-2.3 percent), petroleum products (-4.8 percent), and fertiliser (-6.8 percent). The overall picture of industry remains unsatisfactory and a negative growth of 0.1 percent is expected against the target of 4.7 percent. Electricity, gas and water supply growth worsened at minus 21 percent.
Services sector is expected to contribute 4.1 percent to GDP growth against the target of 4.7 percent. Wholesale and retail trade activities are likely to benefit from expected recovery seen in commodity producing sectors and expected to register growth of 3.9 percent by the end of the ongoing year on June 30. Transport, storage and communication sub-sectors are expected to achieve a growth of no more than 1.3 percent owing to slow growth in both the agriculture and manufacturing sectors.
National savings rate is estimated at 12.9 percent of GDP against the target of 14.5 percent. Total investment has fallen significantly thus far during 2010-11 and is expected to be around 13.4 percent as compared to the target of 17.9 percent of GDP.
Foreign Direct Investment (FDI) for July-March 2010-11 witnessed a decline of 29.2 percent, while portfolio investment fell by 33.1 percent. Major sectors attracting FDI include oil and gas exploration ($396.3 million), telecommunication ($67.3 million), financial business ($125.6 million), trade ($39 million), construction ($4 47 million) and chemicals ($30 million).
Government efforts to generate resources are directly connected with the performance of economic indicators, especially those contributing substantially to taxes. Slow economic growth resulted in lower tax collection and higher current expenditures due to expenses incurred on rehabilitation of flood affectees and reconstruction of flood affected areas. Consolidated budget for 2010-11 was Rs 3.259 trillion (19.2 percent of GDP) that was revised upward to Rs 3.297 trillion. Consolidated revenue for 2010-11 was budgeted at Rs 2.574 trillion (15.2 percent GDP) and was revised downward to Rs 2.485 trillion (14.5 percent of GDP). Overall fiscal deficit target for 2010-11 was budgeted at Rs 685 billion (4 percent of GDP) and revised upward to Rs 811 billion (4.7 percent of GDP).
In view of the rising fiscal deficit, Federal Government in March 2011 announced additional tax measures to attain the revised revenue collection target for 2010-11. The government also took measures to reduce current expenditure and curtailed expenditure by 120 billion (Rs 100 billion cut in PSDP and Rs 20 billion by slashing current expenditure) and generated additional revenue of Rs 90 billion( Rs 53 billion by introducing new tax measures and Rs 37 billion by plugging leakages).
Tax collections during July-April 2010-11 were Rs 1.156 trillion against Rs 1.026 trillion in the corresponding period last year. This amount constitutes 72.1 percent of the entire year's revised target of Rs 1.604 trillion. The widening fiscal deficit is exerting pressure on monetary expansion, which combined with rising international commodities and oil prices, has put inflation on high trajectory.
Growth of broad money (M-2) is targeted at 13 percent for 2010-11. SBP at the outset of 2010-11 increased the policy rate from 12.5 percent to 14 percent in three consecutive increases with effect from August 2, September 30 and November 30, 2010, by 50 basis points each time. SBP simultaneously kept a vigil on liquidity situation and through open market operations mitigated crowding out of private sector, which is evident from rise in credit.
During July 1, 2010 to April 30, 2011, M2 grew by Rs 555.7 billion against an expansion of Rs 414.8 billion during the corresponding period last year. CPI inflation was targeted at 9.5 percent for 2010-11. It spiralled to 14.1 percent by April 2010-11 against 11.5 percent during the same period last year.
Factors contributing to rising inflationary trend are: increase in prices of commodities in international market, higher government borrowings from the banking sector for budgetary support, increase in prices of petroleum products and electricity charges. New tax measures are expected to increase production cost of the agriculture sector resulting in higher average CPI inflation for the current financial year, which might remain around 15 percent instead of 9.5 percent target.
Export target was set at $19.9 billion for 2010-11 as compared to $19.2 billion estimated during 2009-10, reflecting an increase of 3.6 percent. The current account deficit was targeted to be 3.4 percent of GDP in 2010-11, higher than 2.3 percent of GDP that was actually recorded in 2009-10.
External account during July-Mar 2010-11 remained in surplus to the tune of $1 .8 billion as compared to a surplus of $0.5 billion recorded during the same period of last year. Improvement in external account was attributed to the significant fall in the current account deficit, which was a key challenge for the government. At its current pace, 2010-11 current account balance is likely to be less than 0.4 percent of GDP, which is a remarkable achievement given that just two years back the deficit was around 6 percent of GDP.
The largest contribution to the reduction of current account is from current transfers that increased by $2.2 billion followed by $0.7 billion improvement in the services account. Encouraging development during Jul-Mar 2010-11 was 25.1 percent growth in exports despite a host of impediments. However growth in exports appears to be mainly due to rising international prices.
Foreign exchange reserves stood at $17.2 billion as on 23rd April 2011. The rupee also recovered due to encouraging inflows of remittances and export proceeds entering the interbank forex market. Consequently, during Jul-Mar 2010-11, it depreciated only by 2.38 percent as compared to 6.9 percent in the same period of the previous year. The average exchange rate for the month of March 2011 was Rs 85.3/$.
Trade deficit in the Annual Plan 2010-11 was targeted at $11.7 billion (6.1 percent of GDP). The trade deficit reduced by 2.2 percentage points during the first nine months of 2010-11 and touched the level of $8.0 billion. This improvement was mainly due to an increase of $3.6 billion in export earnings which more than offset the rise of about $3.4 billion in import bill. Trade deficit remained 8.1 percent of GDP during July-Mar 2011, higher than 6.3 percent of GDP in the corresponding period last year.
Exports during July-Mar, 2010-11 stood at $17.9 billion as compared to $14.3 billion in the corresponding period of previous year showing an increase of 25 percent. Component-wise analysis of export items during July-Mar 2010-11 indicates that positive growth has been witnessed in all exports groups. About 80percent of the total export items, for which data on both volume and prices are available, showed a positive growth of 25.5 percent. The performance of export so far suggests that if this trend continues, a new record for exports would be achieved. Exports (fob) for the full year of 2010-11 are estimated to be around $24.6 billion, against the Annual Plan 2010-11 target of $19.9 billion.
Imports during July-Mar 2010-11 increased by 15.1percent to $25.9 billion over the corresponding period of last year ($22.5 billion). Group-wise analysis of imports during July-Mar 2010-11 showed that all import groups showed positive growth, except transport and machinery groups which have witnessed negative growth rates of 2.5 percent and 2 percent, respectively.
It is estimated that imports (fob) for 2010-11 will be $36 billion compared to Annual Plan 2010-11 target of $31.7 billion. Similarly, imports, which were relatively passive till the end of the previous fiscal year due to slowdown in domestic economic activity and fall in global commodity prices, have been rising since July 2010 and could surge with further escalation in world prices, especially that of POL.
Workers' remittances witnessed rising trend during the period July-Mar 2010-11, touching a level of about $8 billion as against $6.5 billion in the corresponding period of previous year, registering an increase of 23.1 percent. Monthly average remittances during this period stood at $890.7 million as compared to $727.9 million during the corresponding period of last year. Keeping this trend in view, remittances for the full-year are estimated to reach up to $12 billion.
Remittances have shown an upward trend due to various factors, particularly the measures that are taken under the Pakistan Remittance Initiative (PRI) leading to increased inflow through official channels. Return of Pakistanis working abroad with their total savings due to global economic slowdown, especially in parts of the Middle East, also explains rise in remittances.
Current account deficit was targeted at $6.5 billion (3.4 percent of GDP) in 2010-11 as against $3.9 billion (2.3 percent of GDP) recorded in 2009-10. This was largely based on the assumption of higher workers' remittances. With estimated trade deficit at $11.3 billion and workers' remittances of about $12.0 billion, current account for 2010-11 is estimated to be in surplus at $0.9 billion from last year's deficit of $3.9 billion.
Gross aid disbursements during 2010-11 are expected to decline to $3.6 billion as compared to $4.1 billion recorded last year. Allowing for other capital inflows, the overall balance is likely to be in surplus by $6.9 billion in 2010-11 compared to a surplus of $1.3 billion in 2009-10.