Economy growing despite hiccups

Courtesy:-  S Rahman

State Bank of Pakistan (SBP), like many other federal reserves or central banks of other countries, is one of the pivotal, independent setups whose judgment on economic performance is considered to be highly authentic.

The report published by SBP for the year 2011-12, that appeared on Jan. 30, 2013, has painted a mixed picture of national economy but it is not without hope as some strong, positive indicators have also been recorded in the report like, for instance, the 3.7 % GDP growth which, though is less than the targeted 4.2% mark, is an indicator of economy’s vertical growth, especially in a complex situation that the country is facing vis-à-vis terrorism-driven insecurity and the concomitant isolation in the global market (although PPP leaders especially President Asif Ali Zardari’s good image abroad, has undone this isolation considerably).

Some economists believe that 3.7% GDP growth is reasonable, considering the plethora of challenges faced by the economy. According to the SBP’s latest annual report, GDP’s growth of 3.7% in 2012 is a jump from 3% in the preceding year that obviously means marked improvement on the economic front. The SBP forecasts that growth in the current year (Fiscal Year/FY 2013) will remain about the same. This sustainability is a good sign for the days to come. 

This point has also been elaborated in the report that suggests there would have been yet greater economic improvement had “milder flooding and the underlying factors” not come into play in 2012. The SBP expects the after-effects of the last year’s underlying factors to “largely remain in play during the current fiscal”.

Arif Habib Corp’s Head of Research Khurram Schehzad has, however, a different opinion on this issue. And it has positive, hopeful undertones. Schehzad says, “Considering the number of challenges our economy is facing, I think 3.7% growth is not bad at all. It is true that we are not growing at our real potential, but it is still good that the economy is gradually growing stronger”.

Commenting on the growth forecast for 2013, Schehzad foresees that Pakistan’s GDP would grow by 3.9%, better than the SBP’s forecast. He continues, “You should not expect something extraordinary from the economy because the country is in a transition. It is passing through taxing political and economic challenges on both the domestic and external fronts”.

Another thing that is quite encouraging about the GDP growth in FY12 is that it has been more broad-based compared to FY11, having been evenly distributed across the agriculture, industry and the services sectors. The State Bank has also acknowledged three-times rise in subsidies given by the government in FY 12, mainly in the energy sector. That overburdened the national exchequer but the government support to the power sector continued without fail that implies government’s concern for the people in trouble due to frequent outages.

Yet another accomplishment of the economic managers in the PPP-led government is low inflation rate. This target has not been achieved even by high profile economies of the world where growth rate is above 5 to 7 % per annum. According to the SBP report, for the first time in five years, actual inflation for FY12 turned out to be lower than the annual target. Obviously, this is amongst the key positives indicative of modest improvement in economic activities.

Another important step taken by the government helped the economy to sustain the blows and that was the government’s full attention to agriculture in particular, although many good measures have been taken for bolstering the industry, like the reduction in basis points.

Agriculture that happens to be one of the mian commodity producing sectors posted tangible improvement over FY11.

The growth in this sector came from livestock and Kharif crops; however, minor crops witnessed a decline due to flooding in the first quarter of FY12.

Another important constituent of Pakistan’s economy is that of Foreign Remittances that has never shown slackness.  The SBP remains optimistic that remittances from overseas Pakistanis will continue to post strong growth. This size currently stands at $7.11 billion till Dec 31, 2012.  The country can also depend a lot on exports, especially the exports of textiles although the industry is not manufacturing the products to the optimal level due to energy crisis. The government is, however, giving priority to strengthening the export sector by announcing more incentives and initiatives.

It has also been noted with appreciation throughout the business and industry sector that the government, without making any criticism a point of prestige, is following the advice of SBP and other finance and economic experts, with a sense of commitment.

Guided by these sectors, the government is also concentrating on getting the balance amount of Coalition Support Fund besides working speedily on realizing the proceeds of PTCL privatization from Etisalat. Another area that is being given priority is the auction of 3G licences in the current fiscal. SBP is also hopeful about the Coalition Support Fund being realized timely. An amount of around $1.8 billion has already been given to Pakistan by US government as of December 2012. And SBP also remains hopeful of substantial inflows from Eitsalat, out of the privatization of PTCL and the auction of 3G licences in the current fiscal.