Missing the economic growth target yet again

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[dropcap]A[/dropcap]t a time when the government is battling to regain its lost credibility, a most unhelpful motion has come in the form of rude shock to rulers economic managers in the form a report that the country has missed economic growth target this year as well.

It is very unfortunate that the government which has been harping the tune of economic recovery has missed again its targets on this very important front. Yes, the country missed the economic growth target for the current financial year by a wide margin mainly because of widespread dismal performance by the agriculture sector.

The gross domestic product (GDP) grew by 4.7 per cent against the target of 5.5pc. At a meeting on Friday of the national accounts committee comprising senior representatives from the four provinces and regions and technical experts, the performance of all economic sectors was added up that showed higher than targeted growth by the industrial sector. The services sector achieved its growth target of 5.7pc.

But the most worrying aspect of the year was a 0.19pc negative growth by agriculture as a whole against the target of 3.9pc.

Cotton output led the freefall in the agriculture sector, considered the backbone of the national economy, as it posted a negative growth of 27pc. The cotton output stood at 10.1 million bales against the target of 13.96m bales. Last year, its output stood at 13.9m bales with a 9.5pc growth.

As a result, cotton ginning declined by 21pc against the target of 5pc. Important crops output fell by 7.18pc against the target of 3.2pc, while other crops fell by 6.2pc against the target of 4.5pc.

Wheat production grew by a meager 0.61pc to 25.47 million tonnes.
The livestock sector grew by 3.63pc, but remained short of the 4.1pc target, while fisheries increased by 3.3pc, surpassing the 3pc target. Forestry was the only saving grace in the agriculture sector as it grew by 8.8pc against the target of 4pc.

The the overall manufacturing sector also could not meet growth expectations. The manufacturing sector posted a growth of 5pc, but remained short of the 6.1pc target. It had grown by 3.2pc last year.

The most important sector in industrial domain – large scale manufacturing (LSM) – also could not meet its growth target of 6pc. It grew by 4.6pc. LSM had improved by only 2.4pc last year. Small and household manufacturing grew by 8.2pc against the target of 8.3pc.

The services sector could meet the target of 5.7pc, but this was mainly supported by an increase in the salary of government employees. This was evident from an 11.13pc growth in general government services against the target of 6pc.

Transport, storage and communication services grew by 4.1pc against the target of 6.1pc, while wholesale and retail trade improved by 4.57pc against the target of 5.5pc.

The finance and insurance sector exceeded the target of 6.5pc with a 7.1pc growth. Housing services stood at 3.99pc against the target of 4pc.

Likewise, other private services improved by 6.64pc against the target of 6.4pc.

Overall, it is a saga of missed targets for the rulers who currently have lost credentials in the of the PM’s family’s offshore companies as revealed by the Panama Leaks.

Delaying tactics: a ploy of current rulers
Where it is uplift work, social welfare, economic growth or political aims, the government is just applying one recipe i.e. delaying things to make the most of the situation in its own favour. The same can be applied to NFC award.

As reported in a section of the press, the federal government is likely to promulgate an ordinance extending the 7th NFC award agreed in 2009 and approved by parliament in April 2010 for yet another year. The reason cited by relevant officials is the serious concern of the federal government that negotiations on the 8th award would inevitably focus on provinces’ demand to raise their take of resources under the divisible pool. The federal government is opposed to any such demand.

At the same time, the provinces have shown little inclination to enhance their allocations for all the devolved subjects under the 18th Constitutional Amendment, particularly those relating to social sector development, including education and health.

Divisible pool consists of tax revenue that includes income tax, wealth tax (not applicable), capital value tax, sales tax, export duties, customs, federal excise duties and any other tax levied by the federal government. What is not included is of course non-tax revenue and debt. The provincial share from the divisible pool as a consequence of the 7th NFC award was budgeted at 1.9 trillion rupees and the federal government’s share at 1.48 trillion rupees in the current year.

The Finance Ministry has been attempting to meet its extremely ambitious budget deficit targets, determined after consultation with the International Monetary Fund as required under the 6.64 billion dollar Extended Fund Facility, by not only offering the incentive of a high rate of return to provinces through generating a provincial surplus (the target for the current year is 298 billion rupees) which provinces claim undermines their efforts to allocate/appropriate amounts for social sector development, but also through incurring debt both from external and internal sources thereby accounting for the escalation in our debt profile. According to a recent Bloomberg report, “about 40 percent of Pakistan’s outstanding debt – both local and foreign – is due to mature in 2016, according to data compiled by Bloomberg. That’s roughly $45 billion, of which about 4.3 trillion rupees ($41 billion) is in local currency. Since Sharif took the IMF loan, Pakistan’s debt due by end-2016 has jumped about 79 percent.”

Privatisation proceeds are not included in the divisible pool and this explains the Sharif administration’s focus on this source of revenue without taking account of whether the environment is appropriate for a sell-off.

In this context, the Ministry of Finance had to pressurise the Ministry of Information Technology to auction the remaining 3G/4G licence before the end of the current fiscal year on 30th June, a time period which the relevant ministry had indicated was not appropriate due to prevailing market conditions, and succeeded in bulldozing its decision after getting the approval of the Prime Minister.

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