Economic growth to slow down to 2.4pc: finance ministry
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ISLAMABAD: On the basis of budgetary measures, the Ministry of Finance estimates economic growth rate to further slow down to 2.4 per cent and inflation rate to rise up to 13pc, showing a wide margin with targets set by the National Economic Council (NEC) a few days ago.
The NEC had approved a target of 4pc GDP growth rate for fiscal year 2019-20 in its meeting presided over by Prime Minister Imran Khan on May 29. The meeting had also set a target of 8.5pc for inflation rate.
“The GDP growth is targeted at 4pc with agriculture (3.5pc), industry (2.2pc) and services (4.8pc). Inflation is projected at 8.5pc for 2019-20 in view of the higher administrative prices and monetary overhand of the past,” reported the Annual Plan 2019-20 of the Planning Commission released with the budget documents on June 11.
On the same day, the Ministry of Finance also released its documents including “Budget In Brief” that budgeted real GDP growth at 2.4pc and inflation rate at 11-13pc.
Read: Budget 2020: Govt predicts 2.4pc growth, Rs7 trillion in expenditures
The finance ministry reported that it had budgeted tax-to-GDP ratio at 16.3pc for current fiscal year (2018-19) but it was revised to 14.5pc. For next fiscal year, the tax to GDP ratio has been pitched at 16.7pc or Rs7.348 trillion.
Inflation rate is projected to rise to 13pc
When contacted, a senior official of the finance ministry explained that the Planning Commission had set “targets” based on certain assumptions while the ministry and the State Bank of Pakistan (SBP) made projections on the basis of up-to-date data. For example, he said, the Planning Commission would hardly know the precise fiscal deficit, or what would be the interest rates or the exchange rate movement.
“The projections of the SBP and the finance ministry regarding inflation, growth and many other indicators are always different from those targeted by the Planning Commission,” he said, adding that latest data now suggested that inflation rate next year would be lower than 13pc.
The medium term macroeconomic indicators for 2018-22 also put the growth rate for fiscal year 2020-21 at 3pc. This means that the finance ministry is not expecting the growth rate to recover over the next two fiscal years from a 9-year low of 3.3pc this year despite public pronouncements by the Prime Minister’s Adviser on Finance and Revenue Dr Hafeez Shaikh about economic difficulties subsiding in 6-8 months followed by economic recovery and then growth trajectory.
The finance ministry projects GDP growth rate to recover to 4.5pc by the end of third year i.e. 2021-22.
Likewise, inflation rate is projected by the ministry to come down to 8.3pc in 2020-21, instead of 2019-20 as targeted by the Planning Commission. The ministry projects inflation rate to reduce to 6pc by 2021-22.
The medium term budgetary framework (MTBF) of the finance ministry also projects FBR tax revenue at 12.6pc of GDP or about Rs5,544 billion for next fiscal year and total expenditure at 23.8pc or Rs10,472bn. The total expenditure is projected to slightly fall to 23.4pc of GDP in 2020-21 and 22.8pc in 2021-22.
The MTBF also estimates the total public debt to GDP ratio at 77.7pc during current year and projected to come down slightly to 77.6pc next year. It anticipates total public debt falling to 75.2pc in 2020-21 and 70.6pc in 2021-22.
The MTMF is prepared by the finance ministry and the Planning Commission in consultation with various ministries and the SBP. Based on the macroeconomic situation and future projections, the Ministry of Finance articulates its budgetary policy priorities and prepares a medium- term fiscal framework that is then endorsed by the federal cabinet for presentation to the parliament.
Published in Dawn, June 14th, 2019
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Comments (56) Closed
Jun 14, 2019 07:30am
This is sad as 90 % of population is below poverty line in Pakistan and with the lower growth rate it will be impossible for them to survive in coming years.
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Jun 14, 2019 07:36am
High tax, high electricity, high gas, high petrol, high vegetables, high inflation, high interest, low economy, low jobs, low growth. I'm stopping to pay for bus and train tickets now as a sign of protest. I request others to join.
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Jun 14, 2019 07:36am
So what, we will take loans and buy weapons from Russia soon. Beat that!
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Jun 14, 2019 07:38am
Pakistan needs a revolution and I request all patriots to join for the sake of their children and their future. Say no to taxes
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Jun 14, 2019 07:47am
Inflation 13% ! If this happened in India there would be change of govt.
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Jun 14, 2019 07:53am
Going by the budget jugglery it seems more likely that there will be negative growth this year. But that can always be hidden by the financial wizards in the government.
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Jun 14, 2019 08:09am
Many countries are having this problem, so nothing to worry. Real problem Pakistan is facing is lack of interest in taking preventive measures. Government is busy in blaming previous politicians only. Lack of growth and lack of development lead to political turmoil which may further lead to destabilize economy.
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Jun 14, 2019 08:13am
If inflation is up 13% and GDP is 2.4%, the economy is actually contracting.
Please make Imran Khan the chairman of PCB and spare the nation from his "leadership" !!
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Jun 14, 2019 08:22am
@G, love your sarcasm
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Jun 14, 2019 08:24am
CPEC was supposed to deliver high GDP growth.
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Jun 14, 2019 08:33am
@Sweets, It happened in India during UPA-2 regime when inflation crossed 11% mark. Resultantly Congress was drubbed in 2014 polls and modi came to power. One of the reasons why modi has again come to power is the consistent low inflation during his tenure. Although credit should be given to RBI also.
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Jun 14, 2019 08:34am
13% inflation may affect people's life in poor India or other countries but it is nothing for Pakistan, people are rich.
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Jun 14, 2019 08:51am
Hurry up ! You need 20% GDP growth to match up the weapons race with India. Just jump in with empty stomach, with no skills, bring everyone even kids and women, to match up the power with India. You can’t left behind as Pakistan was created to prove Pakistan would be better land than India. Hurry Up ! India willl have 100bn USD soon , 10x larger than Pakistan Defence budget & twice bigger than your whole economy. Who will talk to you ? India ? Seriously ? Do you really think what importance you will have ? No water for your dams ? No education for your kids? No agricultural production enough to feed your own people ? What destiny you dreamed and what you become ?
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Jun 14, 2019 08:59am
Increase defence budget at least upto 80℅ so Pakistan can defeat entire world.
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Jun 14, 2019 09:16am
well, lets blame the past governments..... so we can say PTI is innocent
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Jun 14, 2019 09:23am
It’s OK - never mind inflation or growth — just look at the handsome pm (read cult leader)!
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Jun 14, 2019 09:28am
So what we have cpec second phase
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Jun 14, 2019 09:34am
For get about anything else. Concentrate on bringing relief for general public. We know present situation is critical. What about for coming out from this crisis. Is there any road map? If any share with public. We know reduction in taxable limit for salaried people is aweful. This medicine does not taste good. But the patient need it. We are accepting it for the sake of country. once again poor are giving sacrifices. President, Prime Minister ,cabinet members and member parliament are reducing their salaries only 10 percent. That is megere amount for rich. It should be reduced at least 30 percent. They should also feel the pain which the poor are suffering.
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Jun 14, 2019 09:41am
@Taher, Pakistan doesn't need revolution. Pakistan needs good education, and socioreligious reform to begin with.
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Jun 14, 2019 09:58am
Ecnomic Growth 2.4% and infilitation rate 13%. This dosen't need an ecnomist to figureout the consequences. Pakistani awam deserves better management to run their country.
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Jun 14, 2019 10:04am
No one in Pakistan knows what's happening. Data integrity is highly questionable. And IK has no clue about nothing. Never seen such hopelessness. Best is to officially annexe Pakistan with China and be done with it.
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Jun 14, 2019 10:11am
Serious trouble.
This is what is an existential threat to Pak.
Not India
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Jun 14, 2019 10:16am
The true value would be negative growth i.e., people losing jobs in the millions because of failing businesses.
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Jun 14, 2019 10:24am
Dear Khaleeq,
From where did you take inflation target 8.5 percent. According to release from NEC meeting that held on 29th May 2019 at PM office, there was not any announcement about inflation target.
Thanks!
Umer
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Jun 14, 2019 10:26am
@Taher, Bhai, we are ready, but we need to be organised, can you create a small message on WhatsApp and send it across to people you know and ask them to forward. Once a WhatsApp group is established, then everything can be organised.
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Jun 14, 2019 10:28am
I would trust NEC more than ministry (where PMLN still have influences). If it was PMLN, ministry would have given higher figure than NEC, because Ishaq Daar was famous in fudging figures.
No one can accurately predict future economic growth. But one thing is certain, that is, agricultural growth this year was low and when that happens, next year agricultural growth always compensates previous year's low growth. My estimate is that, agricultural growth in year 2019-2020 would be around 6 percent and GDP growth would be 5 percent if not more.
To improve situation, Govt has to curb imports and increase exports. That could not happen by devaluation, but through increase production of exportable goods and very high tariff on selected imports.
If govt manages to reduce trade deficit and rupee value against $ increases, then it is possible that Pakistan might see growth 6 percent or more. Govt should target to get $ below Rs 100 in next 4 yrs, and that is possible if right steps are taken
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Jun 14, 2019 10:33am
As an economist, and the condition of Pakistan's economy looking at the forex reserserves, I can gurantee that GDP growth will be around 2% for the next 10 years.
Very few people know that if your inflation is more than growth rate, economy is contracting. That means Pakistan's real growth rate is in negative.
After 10 years, if currency reaches at around 300-400 pkr per dollar, and inflation continues as per IMf , Pakistan's gdp will be less than 100 billion usd.
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Jun 14, 2019 10:34am
Pakistan's gdp in dollar terms is now less than 190 billion usd.
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Jun 14, 2019 10:46am
Planning Commissions r a left-over of communist approach...they rarely do actual planning n their figures r usually way off reality...most countries have got rid of this cumbersome n ineffective super-structure...
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Jun 14, 2019 10:52am
GDP growth of 2.4% ( maximum) as per the budget. Defense expenses up 4.7% and that too after the pm had to personally say thank you on Twitter.
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Jun 14, 2019 10:53am
@Taher, you are right. Pakistanis need to start a real revolution for the sake of their children but not against events like tax increase rather against the real culprit who is pulling down the country slowly but steadily, its so called most powerful Establishment
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Jun 14, 2019 10:58am
Keep away K, take India advice, collaboration, joint venture and you see how things will turn around.
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Jun 14, 2019 11:04am
Time has come to sell Gwadar to China
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Jun 14, 2019 11:35am
@Ashraf P, good idea, but selectors have already appointed a captain. Not easy to change
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Jun 14, 2019 11:40am
@Sweets, no that's not how democracy works. If a government has majority still they will complete the term
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Jun 14, 2019 11:41am
Come on Pakistan you can come out of this situation soon. Its not a rocket science anymore. Be independent and promote local business and non imported products. Even thought we are 'arch rivals' but cant see our former country mates in this situation. Majority of Indians don't want Pakistan to be bankrupted or failed economy. There must be many talented brains in Pakistan who can bring country out of this mess just try to find right person for right job.
Best wishes from your big brother.
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Jun 14, 2019 11:43am
@Graffiti,
Against Two Nation Theory/
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Jun 14, 2019 11:57am
Low growth rate and increasing inflation means no employment of youth promised by PTI
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Jun 14, 2019 11:57am
@Taher, PEMRA will declare the revolution not 'Sadiq & Amen' and NAB will nab you for it.
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Jun 14, 2019 11:57am
Impossible to achieve a tax to gdp ratio of over 16% so basically the deficit would rise and inflation would be even higher than the high projected. As for growth the estimate of 2.4% seems reasonable but still an effort to achieve. In dollar terms the per capita falls and also with relation to inflation the. Using power falls. But most importantly at 2.4% growth the per capita in Rupee terms in absolute terms falls as the growth rate is lower than the population growth rate.
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Jun 14, 2019 12:13pm
I think this is just the beginning of downfall. It is just a matter of time the Pakistani economy as a whole will enter into a proverbial black hole when it will get sucked in a wicked vortex of runaway inflation and devaluation of its currency.
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Jun 14, 2019 12:14pm
Soon the picture at the start of the article will be a true depiction of total GDP of Pakistan.
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Jun 14, 2019 12:25pm
People here may not know, during UPA govt (congress) when inflation reached 9% it had to face lot of heat and ultimately overthrown.
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Jun 14, 2019 01:14pm
@Indian scientist: 'Very few people know that if your inflation is more than growth rate, economy is contracting. That means Pakistan's real growth rate is in negative.'
Is this ur new research?
Let me tell u what GDP growth and inflation means: Suppose this yr GDP was Rs 100. Following year, if inflation is 15% and GDP growth is 2 % than next yr GDP would be Rs 117.3 (or 18% higher than this yr). How?
When one talks or quote GDP growth, it is always real GDP growth. If GDP this yr is Rs 100 and inflation in coming yr is15% than this yr Rs 100 would be Rs 115 next yr. If growth over the year is 2% than 2% of Rs 115 = Rs 2.3. Thus, next yr GDP would be Rs 117.3 - and that is not contraction of economy (or -ve growth rate).
Anyhow, Pakistan situation today is much better than it was in 1999 (esp in $ sense). In couple of yrs under Musharraf, Pakistan was growing @ over 7 % a yr. I do not see any reason, situation would be much different this time too (u just need honest leadership)
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Jun 14, 2019 02:06pm
@shazad, your analysis is all right for domestic consumption and for a 100% self sufficient economy. it's called inflation driven growth, by giving away more money to the people's hands to spend. India tried it in monmohan/Sonia era causing worst fiscal and CA deficit. Problems are-
1. Today's world is so interdependent that local currency says least, for actual picture try to figure it out in dollar term. For worse you have a import oriented economy.
2. You don't have that much of money to transfer to the masses that they will treat it as surplus money to spend that might push growth uoward.
Have patience and ready to face austerity, things need time (possibly decade) to recover otherwise you r doomed
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Jun 14, 2019 02:16pm
@shazad, I am not a student of economics but i do comment on some economic matters. But bro you crossed all the line.
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Jun 14, 2019 02:23pm
@shazad, sleep well for few weeks and wake up in brahmamuhurta time. Everythings will be alright.
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Jun 14, 2019 02:29pm
@shazad, Great New economic theory. So all countries like Argentina Turkey and now Pakistan having double digit inflation and currency fall will be the fastest growing nations at 17%(Pakistan), 35% (Turkey), 65% ( a record for Argentina and the world). You deserve a Nobel prize for your theory.
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Jun 14, 2019 03:25pm
Tax the interest earnings on bank deposits to offset the heavy debt servicing costs. Let the banks deduct capital gain tax when paying out the interest earned.
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Jun 14, 2019 06:49pm
@Rana Talukdar: No one is saying that low growth and high inflation is good. Pak economy is going through hard times. Corrupts, especially those who loot the country and take loot abroad (like invaders and colonisers) bring hardship. Problem in Pak is mostly external debt and dollar situation. Let compare present ‘$’ situation with 1999 and ’07:
2018: Pakistan Total debt is ~ 80 % of GDP (It was 106% of GDP in 1999, reduced to 60 % of GDP in 2007). External debt and Liabilities ~ $105 bn or ~34% of GDP (It was 60% of GDP in 1999, got reduced to 30 % of GDP in 2007). Dollar reserve is ~$15 bn (It was < $500 mn in 1999, increased to $16 bn in 2007).
So, you can see that if honest leadership is available, Pak economy can recover fast – unfortunately, many in country do not like honest leadership because it hurts their personal interest, or they are ignorant who are misguided due to propaganda and lies fed to them.
I believe, with present honest leadership, things would get better.
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Jun 14, 2019 07:41pm
@Rana Talukdar: No one is saying that low growth and high inflation is good. Pak economy is going through hard times. Corrupts, especially those who loot the country and take loot abroad (like invaders and colonisers) bring hardship. Problem in Pak is mostly external debt and dollar situation. Let compare present ‘$’ situation with 1999 and ’07:
2018: Pakistan Total debt is ~ 80 % of GDP (It was 106% of GDP in 1999, reduced to 60 % of GDP in 2007). External debt and Liabilities ~ $105 bn or ~34% of GDP (It was 60% of GDP in 1999, got reduced to < 30% of GDP in 2007). Dollar reserve today is ~$15 bn (It was < $500 mn in 1999, increased to $16 bn in 2007).
So, if honest leadership is available, Pak economy can recover fast – unfortunately, many in country do not like honest leadership because it hurts their personal interest, or they are ignorant who are misguided due to propaganda and lies fed to them through media.
I believe, with present honest leadership, things would get better
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Jun 14, 2019 08:13pm
@shazad, GDP figures of all the country's are quoted in nominal monetary dollar rates, ie the exact value of Goods and services produced in an economy, generally in dollar terms, ie $ 300bln, at current pkr /usd currency exchange rate. Now, growth rate of 2% is applied on the gross nominal value, ie the monetary PKR rupee value, as per actuals goods produced one year from now, obviously in PKR terms. Then for reference its quoted in dollar terms (one year forward) for reference.
Inflation on the other hand measures the 'rise in prices' of the domestic market. Or the loss of purchasing power, its only required if we want to measure the real growth rate. However, outside world has nothing to do with it as over time the inflation of a nation gets factored in the currency exchange rates( *refer: case of Venenzuela's Bolivar)
Now, interestingly as Pak quotes its Nominal GDP of 300 b Usd, as per usd/pkr exchange rates of 130(one year earlier). And considering the future / forward rate is Pkr 170per usd (in 2020) then there is 20 % + depriciation in PKR. Hence 300bln usd becomes usd 240 bln in nominal terms + the 2% growth, which is around $6 bln,(ie: becomes negligible).
Hope this explains...thank you.
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Jun 15, 2019 02:42am
Population growth of Pak is 2.4 percent, so is the proposed GDP also. It means no Per Capita Income growth. Correct me if am wrong.
R.S. Menon, Bangalore
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Jun 15, 2019 06:39am
@Rana Talukdar: It is misconception that GDP is measured in dollars. GDP and GNP of any country is measured in local currency. Let me put down in two parts:
Part 1: Obviously, it would be difficult to appreciate if GDP is quoted in local currency, so for convenience, GDP is converted into dollars and quoted. Various exchange rates are used. I think world bank uses average exchange rate of last 3 years. On the other hand, some GDP is quoted using exchange rate at the end of financial year of that country or using average exchange rate over last one year.
For Pakistan:
GDP (nominal) in 2018-19 was Rs 38559 bn.
[Just for your sake: GDP (nominal) of India for year 2018-19 was Rs 190100 bn].
Now, those who want to quote in dollars, they would convert that and quote in dollars.
Anyhow, one thing to note is that, nominal GDP is always documented GDP. Undocumented GDP (most of it is known as black economy) is excluded.
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Jun 15, 2019 06:40am
Part 2:
Inflation: Govt do price check for various goods and services in different cities. Govt decides what items (goods and services) in their list should be and what weighting. It is govt discretion what items they include and what weighting for items to calcualte inflation, taking account requirements of people. For instance, price of beef, mutton, wheat (Nan), shalwar-qamiz, etc would have high weighting in Pakistan compared to India where vegetable, rice, fish, sari, movie ticket would have high weighting, and so on.
GDP (PPP): Using certain goods and services, it is worked out the real value of local currency with respect to what dollar can buy in USA. Countries exchange rate (value of local currency for purchasing, w.r.t dollar) varies from country to country, and thus we have PPP rate for currency (and GDP).
GDP at constant price: Country work out GDP using base year for prices, and then growth rate compared to this figure is called real GDP (or GDP at constant price).
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Jun 15, 2019 06:49am
Part 3:
Black economy: Pakistan has huge undocumented GDP (and that is why, many consider that even though Pakistan per capita is lower than some countries, real per capita is much higher).
All charity, Zakat, Sadka, Khairat, im-dad, bakshish … even cash payment to mazdoor (even to doctors, teachers, lawyers etc) for their work, money given to poor, needy, servants. workers or even relatives/friends … money paid as rushwat (bribery), bhatta (extortion), etc are all part of black economy. All gains from smuggling, theft, bribery, commission, gain from under/over invoicing, loot and plunder by politicians/bureaucrats … etc, are all part of black economy.
According to some economist, Pakistan GDP is as high as twice the documented GDP (black economy is equal to documented economy), and if it is true than it is possible that Pakistan is richest south Asian country in terms of per capita income (and average standard of living).
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