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On 11 June, the Pakistan Economic Survey 2023-24 was released by Finance Minister Muhammad Aurangzeb, in which the chapter on ‘Growth and Investment’ noted how despite challenges such as “international supply shocks and domestic natural disasters” in FY23, GDP rose, inflation trended downward, and the IMF SBA programme was completed. This was majorly due to the “government’s resilient policy management and renewed support from both multilateral and bilateral partners,” along with structural reforms aimed at stabilizing the foreign exchange rate, and initiatives such as Sasta Bazaars and Utility Stores. Economic sectors experienced a “V-shaped recovery” in FY24. Following are four takeaways from the chapter.
1. A continued sensitivity to fluctuations in the global market
Even though Pakistan’s economy has not been integrated into the global value chain to a large extent, it is still “sensitive to economic fluctuations in its major trading partners.” Since the second half of 2023, the Composite Leading Indicators (CLI) of Pakistan’s main export markets such as the US, the UK, and Euro Area countries, have been expanding. The CLI is also linked to the “cyclical nature” of the manufacturing sector, as changes in the manufacturing output have a “cascading effect on other economic sectors.” Despite international growth showing signs of recovery, the wars in Ukraine and Gaza and differences in the reduction in inflation among trading partners will affect the external sector and growth in Pakistan. The consequences could be in the forms of currency depreciations, fluctuations in commodity prices, increases in production costs, and heightened capital flows.
2. A commendable quarterly growth in three sectors- agriculture, services, and industry
After a moderate growth in agriculture in FY23 owing to floods, FY24 was marked as the “fiscal year of agriculture-led GDP growth.” A 3.74 per cent growth in important crops due to an increased production led to a growth of 3.94 per cent in the agriculture sector compared to last year’s period. Important crops showed an “outstanding increase” in Q1 and Q2 of FY24 compared to FY23, with wheat production increasing from 28.16 million tonnes in FY23 to 31.44 million tonnes in FY24. An increased production of fruits and vegetables also led to other crops experiencing a 1.14 per cent positive growth compared to a 0.99 per cent decline in Q3 of FY23.
The industry recovered after negative growth in Q3 and Q4 of FY23 and Q1 of FY24, with a positive growth of 0.09 per cent and 3.84 per cent in Q2 and Q3 of FY24 respectively, showing a V-shaped recovery. There was also a positive growth in mining and quarrying (0.063 per cent), coal production (23.73 per cent), and marble (5.87 per cent). A higher production of yarn, towels, garments, and other products led to a 1.47 per cent growth in large-scale manufacturing, while separately, the electricity, gas, and water supply industry experienced a 37.3 per cent growth due to increased inputs from WAPDA. There was a decline of -15.75 per cent in Q3 of FY24 in the construction industry, owing to a -15.42 per cent and -2.83 per cent fall in cement, and iron and steel production respectively.
Following a consecutive negative growth in the last two quarters of FY23, the services sector showed “resilience with moderate growth” in FY24 with a 0.83 per cent growth in Q3 of FY24 compared to 2.02 per cent in Q1. There was a “positive but meagre growth” of 0.38 per cent in Q3 of FY24 in the most extensive wholesale and retail trade sector. The negative impact arising from a decline in imports was offset by an increase in agriculture and industry output. A 0.91 per cent increase in growth of the transport and storage industry was attributed to higher production from Karachi Port Trust, Karachi International Container Terminal, and railways.
3. An increase in GDP at market prices coupled with rises in consumption and exports
GDP at current market prices rose by 26.4 per cent from FY23, going from PKR 83,875 billion to PKR 106,045 billion in FY24. A positive growth of 3.5 per cent in workers’ remittances during July-April FY24 contributed to the growth in net primary income (NPI), which has been a trend since FY19. Gross National Income (GNI) posted a 25.9 per cent growth in FY24 in rupee term, while the per capita income in dollar terms vis-à-vis PKR stood at USD 1680 in FY24. A “massive decline in imports due to the international economic slowdown and domestic demand” caused net exports to remain negative in FY24. Exports of goods and services grew by 24.4 per cent, and the import of the same posted a growth of 15.8 per cent.
4. Investment failing to be a driver of high GDP
Primary income rose by 5.6 per cent in FY24 in light of a “tight monetary policy stance, tight credit conditions, and fiscal measures,” while investment and national savings as ratios of GDP slightly declined in FY24, along with consumption. An inverse trend in the incremental capital output ratio (ICOR) indicated that investment is not the driver of GDP growth. Historically, high growth has been linked to high foreign savings (CAD) with low domestic and national savings. The National Savings rate in Pakistan over the last ten years hovered around 12.7 per cent, while foreign savings changed with a change in GDP growth. After the government realized that the “current state of savings and investment rate is not adequate to boost sustainable growth,” it established the Special Investment Facilitation Council (SIFC) in June 2023. Supervised by the prime minister, its main objective is facilitating large-scale investments at the government level in “lucrative industries” with “enormous profit and development potential.” The total investment contains three components- Gross Fixed Capital Formation (GFCF), changes in inventories, and net acquisition of valuables.
In FY24, GFCF was recorded at PKR 12,122.5 billion, an increase of 16.4 per cent compared to 12.8 per cent growth in FY23. During the same period, the private sector GFCF was estimated to be PKR 9189.3 billion, with a 27 per cent increase of GFCF in agriculture, forestry, and fishing due to a rise in imported agriculture machinery and additions in stock of livestock. Higher expenditure on exploration costs resulted in a 10.4 per cent increase in the GFCF in the mining and quarrying sector, reaching PKR 85.2 billion in FY24. The GFCF of the Public Sector was estimated at PKR 508.8 billion against PKR 545.4 billion in FY23, signalling a 6.7 per cent decline. Mining and quarrying, electricity, gas and water supply, and construction faced major declines. However, transportation and storage, and manufacturing registered growth in provisional estimates. The GFCF in the General Government sector was estimated at PKR 2424.4 billion for FY24, a 25.3 per cent increase from FY23. There was an increase at the federal, provisional, and district levels by 0.5 per cent, 32.2 per cent, and 62.7 per cent respectively. Public administration, social security, education, human health, and social work all saw increases as well.
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