First Business Recorder reported that disbursements for CPEC projects for the first six months of the current fiscal year were only 25 percent of what was budgeted for the year - data that was extracted from the website of the Ministry of Planning, Development and Reforms. In other words, the government has only released 42 billion rupees out of the total budgeted 187.3 billion rupees for CPEC projects which indicates a slowdown in infrastructure projects with a consequent negative impact on construction activity. It is fair to assume that disbursement for non-CPEC Public Sector Development Programme (PSDP) projects has also been lower than what was budgeted. Given that PSDP is a major engine of growth for the Pakistan economy this may have a negative impact on the growth rate.
Secondly, the farm sector is under considerable stress for a variety of reasons ranging from water shortages to higher costs of production relative to other countries to a shift in land under cultivation from cotton, a higher value adding product contributing significantly to the growth rate as well as exports, to sugar which, in turn, has required a subsidy to export its surplus as well as recently the mill owners refusal to accept the official cane price has had implications on the farm sector's contribution to growth.
There is however no doubt that total credit to the private sector has increased - a strong sign that investment is picking up. However, sources reveal that the rise in credit is not only being used for new investment or reinvestment in existing units but to meet the liquidity needs of several units due to: (i) the Federal Board of Revenue delaying refunds to show revenue figures that are better than is in fact the case, and (ii) industrial units that had procured loans at higher rates have borrowed at lower rates and written off past loans.
A robust domestic demand in Pakistan is a fair assumption given that 2018 is an election year during which traditionally the administration releases large chunks of funds to its members of parliament for development work which is declared as pre-poll rigging by opposition parties. However what is also relevant to point out is that robust domestic demand has not always reflected increased sales of domestically produced goods. Pakistan has miles of porous borders with India and Afghanistan where smuggling flourishes while barter across the border trade with Iran is also significant. In addition, if investment under CPEC/PSDP has slowed down due to lack of government disbursements, the growth rate may not be as high as projected by the World Bank.
This newspaper, however, estimates a growth rate in the current fiscal year no higher than 5.1 percent at best based on structural weakness that include raising taxes to generate more revenues instead of widening the net, rising current expenditure including higher than budgeted allocation for foreign debt servicing and repayment (due to not only more loans than budgeted from the commercial banking sector but also due to the recent depreciation of the Pakistan rupee), poor governance and, last but not least, rising costs of production that have disabled many an industrial unit to compete with other countries which accounts for not only low exports but a higher smuggling incidence of activity.