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So, we're out of the woods, economically? Federal Finance Minister Dr Hafeez Sheikh answers this question with stoic calm during the presentation of major findings of the Economic Survey 2011-12. According to him, country's economic affairs are not as bad as are being presented as the economy performed better in 2011-12 than many developed and developing economies. The challenges were quite formidable.

These included sharp increases in fuel and commodity prices, recessionary trends globally and weak inflows. Domestically, according to the finance minister, the economy was struck by heavy rains in Sindh and Balochistan costing $3.7 billion. Notwithstanding these challenges the Gross Domestic Product (GDP) growth has reached 3.7 percent as compared to 3 percent last year, the highest in the past three years, says a beaming Hafeez Sheikh.

The Survey 2011-12 gives the revised 2010-11 growth rate of 3 percent and for 2009-10 of 3.1 percent. These figures when contrasted with those released in Economic Survey of a year ago (2010-11) reveal disturbing discrepancies wherein the provisional growth rate for 2010-11 is given as 2.4 percent (instead of 3 percent) and for 2009-10 as 3.8 percent. One can conclude from these discrepancies that provisional estimates are over-estimated to present a favourable current picture or in other words the 3.7 percent growth rate may well be revised downward in the next year's Economic Survey; inexplicably final growth rate data of 2009-10 (two years ago) is also not synchronised between the two surveys. However the growth rate in 2008-09, a particularly poor performance year, was 1.7 percent in the two Surveys.

Agriculture grew by 3.13 percent: notably cotton, sugarcane and rice, though minor crops registered a 1.26 percent decline. However international cotton price has nose-dived which would negatively impact on our exports and foreign exchange earnings as well as the country's ability to pay back the 4 billion dollars to the International Monetary Fund due next year. Manufacturing sector grew by 3.56 percent the Survey notes. However, a look at the statistical addendum reveals that the provisional estimates for 2011-12 indicate a decline in output of cotton yarn (from 2939 last year to 2225 million kgs this year), cotton cloth (from 1020 to 769 million sq meters), fertiliser (from 6.8 to 5 million tons), and cement from 28 to 21 million tons). The other commodities listed also witnessed a decline in output notably soda ash, caustic soda, cigarettes and jute goods. Sugar was the only commodity that witnessed a rise in output - from 4.2 million tons last year to 4.5 million tons this year.

Dr Hafeez Sheikh highlighted yet again the negative external/international factors that impacted on the economy namely the rising cost of oil, floods second year running, the continuing war on terror and the decline in the international price of our principal export earning commodity namely cotton. He was, however, silent on what mainly beset the economy third year running: a severe energy shortage. He, nevertheless, conceded that the government ought to have performed better in this area. The Economic Survey 2011-12 notes that the country's economy has been growing at an average growth rate of almost 3 percent for the last four years and demand of energy both at the production and consumer end is increasing rapidly. In this regard, the survey provides details in relation to the government's efforts towards resolving the lingering energy crisis. The government shows a lot of confidence in the Energy Recovery Plan articulated by Finance Minister-led Energy Committee, which enjoys the approval of Federal Cabinet.

The Energy Recovery Plan, according to the Survey, focused on various key points. It is, indeed, heartening to note that the contribution of Hydel in electricity generation increased to 33.6 percent in 2011. Karachi Electricity Supply Corporation (KESC) contributed 8.3 percent, Pakistan Atomic Energy Commission (PAEC) 3.6 percent, Kot Addu Power Company (KAPCO) 6.2 and the Hub Power Company (HUBCO) 9.1 percent to total electricity generation. Independent Power Producers (IPPs) have contributed almost 25 percent. Supporting a long-term solution to the country's energy needs, the Survey points out that Pakistan has huge coal reserves estimated at over 185 billion tonnes. The government, according to the Survey, is also working on different gas pipelines as well as import of LNG and LPG to address gas shortages. In this regard, Liquefied Natural Gas (LNG) Policy 2011 has been notified which encourages private parties to develop LNG projects and sets them free to participate in any segment of the LNG value chain. Gas supply increased by 4.9 percent in July-March 2011-12 as compared with the corresponding period of last year. The average production of natural gas during July-March 2011-12 was 4236.1 million cubic feet per day (mmcfd) as against 4050.6 (mmcfd) during the corresponding period last year showing an increase of 4.6 percent.

The Survey also notes that installed capacity of electricity declined from 22500 MW to 22300 MW, a claim that belies statements to the contrary by the Prime Minister as well as the Water and Power Minister. However, generation was well below capacity at less than 10000MW with widespread unrest across all major cities. Below capacity energy generation led to idle capacity in all sectors indicated by a decline in real investment as a percentage of GDP from 13.1 percent last year to 12.5 percent in the current year and a shrinking of private investment from 8.6 percent last year to 7.9 percent this year. This is accounted for by shrinking domestic savings rate - from 13.2 percent last year to 10.7 percent this year - as inflation and utility charges particularly of energy skyrocketed.

So where did the money come to meet the investment savings gap? Not from increasing foreign debt and liabilities which rose by only 179 million dollars between July-March 2012 as pledged assistance was not disbursed partly due to the ongoing tensions between the US and Pakistan and partly because of the continued failure of the government to implement power sector and tax reforms. To meet the investment savings gap the government borrowed directly from the State Bank of Pakistan as well as from the commercial banking sector which accounted for a massive increase in total public debt during the first nine months of 2012 - an increase of 1315 billion rupees (around 13 billion dollars). The actual figures for the remaining three months may push us towards an unsustainable public debt that would further fuel inflation.

Fiscal deficit, the Survey notes, recorded at 5 percent of GDP during July-March 2011-12, contrasting favourably to 5.5 percent during the same period last year. This statistic challenges the 8 percent deficit mentioned by many analysts. According to the Survey, workers' remittances witnessed a strong growth of 25.8 percent in 2011 over the previous year 2010. During July-April 2011-12, workers' remittances grew by 20.2 percent at $10.9 billion. The buoyancy in remittances is largely attributed to the government's efforts to divert remittances from informal to formal channel. In a nutshell, the overseas Pakistanis do not disappoint their country.

It is interesting to note that unlike the past, it was for the first time in many years that Public Sector Development Program did not face any cut. Despite huge financial constraints, the Government made a special effort to fully fund the PSDP. Accordingly, Rs 304 billion were released that facilitated completion of 200 projects. Government efforts can be gauged from the fact that Rs 2.2 trillion were provided during the last four years for PSDP.

On money and credit, it says that since the SBP was following a tight monetary policy till August 2011 and the interest rates were moving up, the banking spread remained high. As far as capital markets are concerned, the survey claims that Pakistani stock market performed well as compared to markets of the world during the current fiscal year. This was mainly due to the steps taken by the government to boost the confidence of the equity market investors which included reforms in the capital gains tax, etc in this regard, it speaks about the enactment of Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012. The law requires stock exchanges to be demutualized within 119 days of its promulgation in accordance with timelines specified for completion of various milestones involved in the Demutualization exercise. Corporatization, demutualization of stock exchanges would entail converting their structure from non-profit, mutually owned organisation to for-profit entities owned by shareholders. About inflation, it claims that inflation has declined for the third consecutive year. CPI was 10.8 percent during July-April, 2012 from a high of 25 percent in October 2008. It was in single digit in December 2011. This has been achieved despite sharp increase in international oil prices, effect of upward adjustment in the administered prices of electricity and gas, supply disruptions due to devastating floods of 2010 and heavy rains of 2011 and bank borrowings. Food and non-food inflation averaged 11.1 percent and 10.7 percent respectively against 18.8 percent and 10.8 percent in the same period of last year.

The government appears confident that despite the eurozone crisis, impacting the demand for Pakistani goods, Pakistan has successfully maintained its exports at last year's until April this year. Exports during July-April 2012 were $20.5 million compared to $20.46 billion last year. The Afghan Transit Trade Agreement (APTTA) has encouraged formal trade between Pakistan and Afghanistan and the volume has risen to around $2.5 billion annually. Efforts are under way to formalize Free Trade Agreements and Preferential Trade Agreements with many countries. It will help boosting Pakistan's exports. Efforts are also in hand to normalise trade relations with India.

Imports grew by 14.5 percent and stood at $33.1 billion during July-April 2012. The current account deficit stood at $3.4 billion in the same period. It was largely as a result of high oil prices and import of fertilisers. Continued support from current transfers in the form of workers' remittances helped in containing current account balance. Pakistan's foreign exchange reserves reached $16.5 billion at the end-April 2012 compared to $17.0 billion at end-April 2011. The exchange rate averaged out at Rs 85.50/US$ during July-April 2010-11, whereas at Rs 88.55/US$ during July-April 2011-12. The Pak Rupee depreciated by 3.4 percent during July-April 2011-12 over the depreciation of 2.2 percent in July-April 2010-11 period.

The Benazir Income Support Programme, a flagship programme of the Government, has made remarkable progress by providing much needed relief to over 4 million recipients all over Pakistan. It is, indeed a great success of the present ruling coalition. Independent observers argue that successful implementation of this programme has brightened up PPP's prospects in the upcoming general election. The Survey seeks to recall the state of economy in 2008 with a view to explaining the reasons behind its decision to go to the IMF. According to the Survey, the Government had no choice but to go to IMF to strengthen international reserves and ensure fiscal stabilisation. The economic situation obtaining at this point in time also underscores the need for going to the global lender again. Hence the need for fiscal discipline and consolidation and implementation of all those reforms pledged with the Fund earlier.

Copyright Business Recorder, 2012

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