Just a month after the federal budget 2019-20 was approved by the parliament and the International Monetary Fund (IMF), some of the key macroeconomic indicators show a marked difference from the very basis of the budget and the IMF programme.

The last (2018-19) year’s economic growth rate (GDP) was estimated at 3.3 per cent in both the documents. It turned out within a month that the projection had nothing to with reality. The State Bank of Pakistan (SBP) was the first to highlight the gap in wheat output numbers based on the feedback from the Ministry of National Food Security and Research (MNFSR).

This was then followed by the large-scale manufacturing (LSM) numbers. Both wheat and LSM statistics have a key impact on GDP.

It’ll be reasonable to suggest that the final GDP growth rate may at best touch 3pc

Wheat accounts for almost 9pc of value-added agriculture and close to 2pc of GDP while LSM has more than 10pc weight in GDP. It would not be unreasonable to suggest that the final GDP growth rate may at best touch 3pc or be short of that mark when data for the full year finally becomes available.

On July 15, the SBP pointed out a gap of 1.3 million tonnes in the wheat production projections that became the basis of the 3.3pc GDP growth. The Pakistan Bureau of Statistics (PBS) reported 25.6m tonnes against 24.3m recorded by MNFSR.

The SBP report said “data from the Pakistan Economic Survey shows that wheat production rose marginally by 0.5pc to 25.2m tonnes in 2018-19 as the government revised 2017-8 wheat output downwards by 0.4m tonnes. However, according to the latest estimates by the MNFSR, wheat production for 2018-19 had been recorded at 24.3m tonnes which instead shows a contraction of 3.2pc compared to the revised production of 25.1m tonnes in 2017-18”.

The central bank attributed the discrepancy between the estimates provided by PBS and MNFSR to the PBS not accounting for production levels due to untimely rains and hailstorms at peak harvest time. It was reported that the wheat crop showed a marginal increase of 0.5pc over last year’s production of 25.076m tonnes but fell short of the target by 4.9pc. The area under-cultivation declined by 0.6pc.

The July-May 2018-19 data for LSM also suggested a 3.5pc decline as against only a 2.9pc drop assumed in the 3.3pc GDP growth rate. The data for June 2019 is still unavailable and that is expected to have further bad news given the closure or lower production by some industries, particularly the automobile sector. The impact of measures announced in budget 2019-20 is yet to come and does not appear encouraging at this stage.

These numbers also suggest another alarming trend — more than 7pc reduction in oil products. While a 12pc decrease in furnace oil production is a good omen given the increasing share of comparatively cheaper re-gasified liquefied natural gas and coal, the roughly 8pc decline in high-speed diesel (HSD) production in 11 months of the year is a clear sign of the general slowdown in the economy.

This is crucial given the fact that major transportation and a large part of agriculture is dependent on HSD. This is also reinforced by the roughly 16pc decline in the import of petroleum products during the last fiscal year. In contrast, the production of petrol has gone up by about 6pc despite the continuous price hike.

Moreover, the revenue collection of the last fiscal year, despite an amnesty scheme, is reported to have stood more than Rs200 billion short of the Rs4.15 trillion projected in the budget books based on which the current year’s revenue target was set at Rs5.55tr and agreed to by the IMF.

There are other expenditure overruns too including debt servicing higher than pitched in the budget books that are fast becoming irrelevant even in the first month of the current fiscal year.

Based on these estimates, there are strong indications that the country’s deficit for the last fiscal year will go past 8.2pc — the highest recorded since 2013 and that too after including the power sector circular debt.

The current account deficit has dropped from close to $20bn in 2017-18 to about $13.6bn in 2018-19 but this is not contributed by export growth. Imports dropped during the year by less than 10pc, mainly because of an anticipated tapering off in CPEC-related imports as evident from the 23pc reduction in machinery and the 30pc fall in the transport sector with the completion of major infrastructure and energy projects.

Initial response to the current year’s revenue drive also suggests that various stakeholders have not settled down with the government’s economic and revenue policy. The collection so far appears behind monthly targets. Based on Rs4.150tr envisaged collection in budget books, the government has set a target of additional revenues of about Rs1.450tr that would now require another Rs200bn or so.

That would mean that government would have to resolve all outstanding issues at the earliest and the revenue machinery would need to make additional efforts over the next 11 months to make up for the first month’s loss if the gigantic target of Rs5.550tr. Otherwise, the critical commitment made with the IMF for a 0.6pc primary deficit would remain a pipedream.

Published in Dawn, The Business and Finance Weekly, July 29th, 2019