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Challenging road ahead: Pakistan's economic growth projected to slow down to 2.1%: report

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Development spending falls 45pc in July-October​

Khaleeq Kiani
November 26, 2022


ISLAMABAD: Amid rising interest payments and disruptions caused by super floods, Pakistan’s development expenditure has contracted almost 45 per cent to less than Rs99 billion in the first four months (July-October) of the current fiscal year as the government’s overall expenditures increase.

According to data released by the Ministry of Planning and Development, total expenditure in the first four months of FY23 amounted to Rs98.78bn compared to Rs178bn in the same period last year. Total expenditure, thus, stands at just 12.37pc of total PSDP allocation of Rs800bn — drastically short of the target mechanism for development spending.

Under the disbursement mechanism announced by the Planning Division, the development funds allocated in the federal budget are released at the rate of 20pc in the first quarter (July-September), followed by 30pc each in the second (October–December) and third quarter (January-March) and remaining 20pc in last quarter (April-June) of a fiscal year.

As an interim arrangement to remain engaged with the International Monetary Fund (IMF), the government has decided to contain development spending to less than 20pc in the first half of the fiscal year (July-December) instead of 50pc given slippages on interest payments and slow down in revenues.

The government now estimated its overall expenditures to surge past budget target by about Rs1 trillion owing to about Rs900bn higher interest payments and less than Rs100bn revenue shortfalls that may need to be bridged through additional tax measures next month.

Tragically though, even the development expenditure reached Rs98.78bn mark mainly because of a more than 45pc increase in spending by state-run corporations — power sector entities and National Highway Authority (NHA) — to Rs44.64bn in the first four months of the current year when compared to Rs31bn of the same period last year.

More importantly, the utilisation of development funds by state-run corporations stood on the higher side chiefly because of a more than 245pc surge in power sector projects which increased from Rs7bn in the first four months of last year to Rs24.4bn this year.

NHA’s expenditure on the other hand slightly dropped to Rs20bn this year against Rs24bn last year.

Excluding corporations, the development expenditure by the federal ministries and divisions and their attached departments stood at Rs54bn in four months of the current year compared to Rs147bn of last year, showing a contraction of over 63pc.
Mainly because of low utilisation, the planning ministry had stopped regular publication of PSDP authorizations and expenditures since the start of the current fiscal year and has for the first time come up with a consolidated position on spending.

The Planning Division used to release weekly updates about authorised funds for PSDP over the years — a tradition discontinued this year along with the removal of last year’s data from its website archives as well. Low utilisation of public funds for development has a direct bearing on the living standards of the population with adverse social and developmental outcomes.

The ministry showed that about Rs241bn had been authorised for utilization under the rules and disbursement mechanism but actual spending could not go beyond 41pc or Rs98.7bn. The development expenditure excluding corporations at Rs54bn remained even lower at just 29pc of the authorized Rs184bn for the first four months.

The water resources division emerged as the best performer in terms of utilization of funds with Rs19bn against authorised amount of Rs21.4bn this year because of ongoing major development projects. Last year, the water sector consumed Rs18bn in four months against authorized spending of Rs58bn.

The Ministry of Finance has already reported the country’s first quarter fiscal deficit at 1pc of GDP against 0.7pc of GDP in the same period last year. The deficit in absolute numbers in three months this year was reported at Rs809bn compared to Rs484bn in the same period last year — up 67pc.

According to the Ministry of Finance, the country’s revenue collection had dropped in the first three months of CFY and total expenditures went up when compared to the same period last year — leading to an increase in the fiscal deficit.

The total revenue as a percentage of GDP dropped to 2.6pc this year from 2.7pc last year as tax revenue plunged to 2.3pc of GDP when compared to 2.7pc of GDP in the first quarter last year.

Published in Dawn, November 26th, 2022
 
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Defense spending needs to be slashed

MILITARY SPENDING IN ASIA​

16 Jun 2022
How much do Asian countries spend on their military?

Asia Military Spending, Percentage to GDP

1669512519832.png
 
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ghazi52 said:
,.,..,.

Challenging road ahead: Pakistan's economic growth projected to slow down to 2.1%: report​

  • EFG Hermes says political uncertainty will dent country's economic outlook
BR
November 25, 2022

Marred by political uncertainty and challenging economic indicators, Pakistan’s GDP growth is projected to witness a significant slowdown to 2.1% in the ongoing fiscal year (FY23), EFG Hermes, an Egyptian financial services company, said in a report released on Friday.

“We forecast real GDP growth will slow to 2.1% in FY23, from 6.2% in the previous fiscal year with the potential for a mild recovery in FY24 to 3.1%,” said the company in its report titled ‘Pakistan Economic Note’, a copy of which is available with Business Recorder.

“The growth outlook beyond the current fiscal year is primarily hinged on future political developments, which will dictate the macro path,” it said.

“Pakistan’s macro outlook remains hostage to political instability that has unfolded since early this year after the impeachment of former prime minister Imran Khan.

“Since then, the political environment has become a deadlock with a cornered ruling coalition facing an increasingly popular opposition, leading to a political stalemate. Tensions between the PTI and the army have also added oil to the fire, leading to further concerns over political stability,” it said.

“We see no resolution to this deadlock in the immediate future as any near-term elections would risk handing power to the more popular PTI,” the report stated.

Moreover, adding to the challenging external economic conditions, recent floods paint an unfavorable economic outlook, the report said.

“While we are reassured it will repay its $1 billion maturing Sukuk in December, its external position remains very fragile with reserves of only $8 billion as of mid-November (equivalent to 1.5 months import cover).

“In that respect, the macro sustainability really hinges on Pakistan’s ability to receive external support from friendly countries,” it said.

The report highlighted that the recent appointment of a new army chief might eventually open room for “such flows to come, in our view, though the outlook will remain uncertain in the near term”.

The report expects the Pakistani rupee (PKR) to remain under pressure despite the recent narrowing of the current account deficit.

“The drop in remittances is of particular concern, which was likely driven by higher remittance inflows through informal channels that offer better rates. Moreover, the drop in imports remains partially driven by de facto import controls, hence this is not necessarily fully genuine.

“We project the current account deficit to narrow to 2.6% of GDP in FY23 with risks mainly tilted to the downside considering the abovementioned concerns,” it said.

Moreover, supply disruptions on the food side, mainly due to the recent floods, and potential measures to contain the fiscal deficit are likely to keep inflation elevated.

“We project average inflation of 23.5% in FY23,” it said.

Earlier in September, the Asian Development Bank (ADB) forecasted Pakistan’s economic growth to slow down to 3.5% in the ongoing fiscal year amid devastating floods, policy tightening, and critical efforts to tackle sizable fiscal and external imbalances.


www.brecorder.com

Challenging road ahead: Pakistan's economic growth projected to slow down to 2.1%: report

EFG Hermes says political uncertainty will dent country's economic outlook
www.brecorder.com
Click to expand...
This cant be correct figures ... Production in agri sector is low due to floods ... Large scale manufacturing is declining ... Import is already reduced resulting in lower raw material and lower exports ., Apparently we r at recession atleast in ongoing half year ... Next 2 quarters will needs massive growth to achieve 2% growth
 
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Achieving 2% growth would be a huge undertaking.

The forex reserves are depleting fast, investment down, remittances are down, suspect RDA net accumulative positions are down as well, imports are already at bare minimum, interest rates are at historic high.

This is a perfect storm. What you’ll see next is a huge increase in Rs/$ rate.
 
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.,.,

A consistent downward slide​

Miftah Ismail
November 27, 2022


The writer is a former finance minister.

The writer is a former finance minister.

ASK anyone familiar with economic matters what is the basic problem with Pakistan’s economy and they will say it’s the current account deficit. And that would be the correct answer. The boom-and-bust cycle of our economy is precisely because we run into a current account deficit every time we try to achieve growth. (The fact that we remain poor is due to our low productivity, but that’s a separate discussion.)

Current account deficit is the difference between foreign exchange going out (imports) and foreign exchange coming in (exports plus remittances). In Pakistan’s case we have always had current account deficits (except for three out of 75 years), meaning that we have always had less to sell to foreigners than our propensity to consume their products. Of course, such an arrangement is not sustainable forever, and we have reached a stage where it is not.

There was a time in the 1950s when Pakistan’s exports were more than South Korea’s and a time in the 1990s when our exports were more than Vietnam’s. Today, South Korea’s and Vietnam’s exports are 18 times and six times more than Pakistan’s respectively. So the story of our relative decline is both old and consistent. However, it has taken on a sharper edge in this century.

The default risk won’t vanish even after the December bonds are paid off.

When Gen Pervez Musharraf imposed martial law in 1999, our exports were 16 per cent of GDP. When General Sahib at long last left, our exports had decreased to 12pc of GDP. In 2007-08 the government kept the rupee propped up to an unsustainable value of about Rs60 to a dollar, sold petrol at a loss, and ran the highest current account deficit in our history. (We aren’t particularly innovative in our policy errors; as you will see below — even our mistakes are recycled.) When the new PPP government came, it had to devalue the rupee and run to the IMF.

Although there wasn’t much that was stellar about its governance except for the Benazir Income Support Programme, the PPP should get the credit that it increased exports to 13.5pc of GDP.

Next came the PML-N and whereas it did solid work in building energy and transport infrastructure and ushering in CPEC, our exports declined by a debilitating 38pc to only 8.5pc of GDP and we ran the second-largest current account deficit in our history. Again, the issue was a currency pegged to a dollar that highly subsidised imports and made them surge even as our exports were getting priced out.

We tried to make amends in the five months I worked as Shahid Khaqan Abbasi’s finance minister through devaluation but the solution lay in the IMF, which could only happen after a new government was formed post-elections. In the event, the incoming PTI government dithered for a while before agreeing to a new IMF programme.

With the advent of the coronavirus pandemic, which the PTI government handled quite well, IMF conditionalities were lifted even as loans kept coming. This allowed it to spend borrowed money without raising tax revenues. The push for unsustainable growth turbo-charged our imports and with export-to-GDP remaining almost stagnant we ran into the third-largest current account deficit in our history.

Although in December last year, the PTI government had restarted the much-needed IMF programme, in February, faced with a vote of no-confidence, it opted to sacrifice the national interest for political interest and scuttled the IMF programme, giving unfunded subsidies for electricity and petrol, and another amnesty to business. It was this breaking of the IMF agreement that set in motion the upward trend in our default risk.

When the new government came, we did what we had to do to renew the IMF programme and avoid default. This obviously involved some hard choices and I was relentlessly criticised from all sides. The main criticisms were about our letting the markets decide the rupee-dollar parity, increasing fuel prices and raising taxes.

We would’ve been happy if the dollar had organically depreciated, but I wasn’t in favour of either, spending money or issuing administrative fiats to keep the dollar at a certain rate. I don’t know what is the optimal rate of the dollar; I think only the market can determine that.

Last year, our imports were $80 billion and exports only $31bn. Surely the number one priority of the finance minister should not be to make imports cheaper and export harder, which is what an appreciated rupee does.

We have been down this road before in 2007-8 and 2017-/18, without any joy. (A complaint that Western countries had in the 1990s was China keeping its currency depreciated to promote its exports. We, on the other hand, like to promote imports and restrict exports and remittances by keeping the rupee overvalued and then complain when we run out of dollars.)

Today, there is a large and persistent difference between the open market and the interbank exchange rates. This suggests that the State Bank is informally guiding banks on the exchange rate. The large difference is also detrimental to our exports and remittances and is encouraging imports.

The other criticisms were increasing the price of fuel and imposing new taxes. But should our government be selling petrol at a loss? Moreover, if there are 2.2 million shops in Pakistan and only 30,000 pay income tax, is it not fair to ask them to pay just Rs3,000 per month?

Today, our default risk has climbed up again and reached dangerous levels. This risk won’t vanish even after the December bonds are paid off. At the risk of sounding an alarm, I have to say that we have no room left for error. Concrete measures that reassure markets and lenders are urgently needed.

There comes a time when the national interest must prevail over political interest. This is that time. This government will have no right to criticise PTI or anyone else if, having eagerly decided to come in power, it is unable to do what is right for the country.

The writer is a former finance minister.

Published in Dawn, November 27th, 2022
 
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We need seriously overhaul to fix economy and don't go for loans from friendly countries becos this will be eaten by local mafia and as a result we pay for these in high prices of oil to pay back
 
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maithil said:
Looks like import duties on Audi has been cut ... Priorities..
Click to expand...
It is not import duties. It is the end of some other tax:

Audi price cut

A massive cut in various models of the Audi e-Tron has taken the auto market by storm.

Market insiders attribute the massive price drop to expiry the of SRO1571(I) 2022 on Nov 21, which dealt with regulatory duty on electric vehicles.

The new ex-showroom price of the e-Tron 50 is Rs22.3 million compared to Rs32.45m down by Rs10.15m. The price of e-Tron SB has been reduced by Rs11.30m and now it would be available at Rs24.85m.

The new price of an e-Tron GT is Rs34.50m compared to Rs48.32m showing a fall of Rs13.825m.

After a cut of Rs19.50m, e-Tron GT RS now carries a price tag of Rs48.5m.

The duty on electric vehicles had been raised to 100pc from zero in the last week of August and was set to expire on Nov 21.

There is also this:

Auto market’s fortunes turn as ‘own money’ vanishes on falling demand​

• Struggling to offload cars, Chinese and Korean firms offer attractive packages, discounts

www.dawn.com

Auto market’s fortunes turn as ‘own money’ vanishes on falling demand

Struggling to offload cars, Chinese and Korean firms offer attractive packages, discounts.
www.dawn.com
 
Last edited:
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ghazi52 said:
.,.,

A consistent downward slide​

Miftah Ismail
November 27, 2022


The writer is a former finance minister.

The writer is a former finance minister.

ASK anyone familiar with economic matters what is the basic problem with Pakistan’s economy and they will say it’s the current account deficit. And that would be the correct answer. The boom-and-bust cycle of our economy is precisely because we run into a current account deficit every time we try to achieve growth. (The fact that we remain poor is due to our low productivity, but that’s a separate discussion.)

Current account deficit is the difference between foreign exchange going out (imports) and foreign exchange coming in (exports plus remittances). In Pakistan’s case we have always had current account deficits (except for three out of 75 years), meaning that we have always had less to sell to foreigners than our propensity to consume their products. Of course, such an arrangement is not sustainable forever, and we have reached a stage where it is not.

There was a time in the 1950s when Pakistan’s exports were more than South Korea’s and a time in the 1990s when our exports were more than Vietnam’s. Today, South Korea’s and Vietnam’s exports are 18 times and six times more than Pakistan’s respectively. So the story of our relative decline is both old and consistent. However, it has taken on a sharper edge in this century.

The default risk won’t vanish even after the December bonds are paid off.

When Gen Pervez Musharraf imposed martial law in 1999, our exports were 16 per cent of GDP. When General Sahib at long last left, our exports had decreased to 12pc of GDP. In 2007-08 the government kept the rupee propped up to an unsustainable value of about Rs60 to a dollar, sold petrol at a loss, and ran the highest current account deficit in our history. (We aren’t particularly innovative in our policy errors; as you will see below — even our mistakes are recycled.) When the new PPP government came, it had to devalue the rupee and run to the IMF.

Although there wasn’t much that was stellar about its governance except for the Benazir Income Support Programme, the PPP should get the credit that it increased exports to 13.5pc of GDP.

Next came the PML-N and whereas it did solid work in building energy and transport infrastructure and ushering in CPEC, our exports declined by a debilitating 38pc to only 8.5pc of GDP and we ran the second-largest current account deficit in our history. Again, the issue was a currency pegged to a dollar that highly subsidised imports and made them surge even as our exports were getting priced out.

We tried to make amends in the five months I worked as Shahid Khaqan Abbasi’s finance minister through devaluation but the solution lay in the IMF, which could only happen after a new government was formed post-elections. In the event, the incoming PTI government dithered for a while before agreeing to a new IMF programme.

With the advent of the coronavirus pandemic, which the PTI government handled quite well, IMF conditionalities were lifted even as loans kept coming. This allowed it to spend borrowed money without raising tax revenues. The push for unsustainable growth turbo-charged our imports and with export-to-GDP remaining almost stagnant we ran into the third-largest current account deficit in our history.

Although in December last year, the PTI government had restarted the much-needed IMF programme, in February, faced with a vote of no-confidence, it opted to sacrifice the national interest for political interest and scuttled the IMF programme, giving unfunded subsidies for electricity and petrol, and another amnesty to business. It was this breaking of the IMF agreement that set in motion the upward trend in our default risk.

When the new government came, we did what we had to do to renew the IMF programme and avoid default. This obviously involved some hard choices and I was relentlessly criticised from all sides. The main criticisms were about our letting the markets decide the rupee-dollar parity, increasing fuel prices and raising taxes.

We would’ve been happy if the dollar had organically depreciated, but I wasn’t in favour of either, spending money or issuing administrative fiats to keep the dollar at a certain rate. I don’t know what is the optimal rate of the dollar; I think only the market can determine that.

Last year, our imports were $80 billion and exports only $31bn. Surely the number one priority of the finance minister should not be to make imports cheaper and export harder, which is what an appreciated rupee does.

We have been down this road before in 2007-8 and 2017-/18, without any joy. (A complaint that Western countries had in the 1990s was China keeping its currency depreciated to promote its exports. We, on the other hand, like to promote imports and restrict exports and remittances by keeping the rupee overvalued and then complain when we run out of dollars.)

Today, there is a large and persistent difference between the open market and the interbank exchange rates. This suggests that the State Bank is informally guiding banks on the exchange rate. The large difference is also detrimental to our exports and remittances and is encouraging imports.

The other criticisms were increasing the price of fuel and imposing new taxes. But should our government be selling petrol at a loss? Moreover, if there are 2.2 million shops in Pakistan and only 30,000 pay income tax, is it not fair to ask them to pay just Rs3,000 per month?

Today, our default risk has climbed up again and reached dangerous levels. This risk won’t vanish even after the December bonds are paid off. At the risk of sounding an alarm, I have to say that we have no room left for error. Concrete measures that reassure markets and lenders are urgently needed.

There comes a time when the national interest must prevail over political interest. This is that time. This government will have no right to criticise PTI or anyone else if, having eagerly decided to come in power, it is unable to do what is right for the country.

The writer is a former finance minister.

Published in Dawn, November 27th, 2022
Click to expand...
This is an interesting and novel analysis of what ails Pakistan's economy. The author, who was the Deputy Governor of SBP argues that Pakistan was the beneficiary of unearned income for too long. That resulted in Pakistan not developing means of production. Now, there is neither assets/capital nor skills for production leading to local consumption having to be filled by imports. In U.S., we call this Welfare curse where people who are on government dole for too long become unemployable as they lose their skills and initiative to search for new opportunities.

Our Dutch disease​

https://www.dawn.com/news/1724225/our-dutch-disease
 
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epebble said:
This is an interesting and novel analysis of what ails Pakistan's economy. The author, who was the Deputy Governor of SBP argues that Pakistan was the beneficiary of unearned income for too long. That resulted in Pakistan not developing means of production. Now, there is neither assets/capital nor skills for production leading to local consumption having to be filled by imports. In U.S., we call this Welfare curse where people who are on government dole for too long become unemployable as they lose their skills and initiative to search for new opportunities.

Our Dutch disease​

https://www.dawn.com/news/1724225/our-dutch-disease
Click to expand...
Very interesting.. Calls put ill effects of increasing remittances...
 
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