Finance Advisor releases Economic Survey 2008-09

Posted on June 13, 2009

ISLAMABAD: Despite inhospitable domestic and international environment, Pakistan’s economy grew by 2 percent in the financial year 2008-09. According to Economic Survey 2008-09, launched jointly by Advisor to Prime Minister on Finance, Shaukat Tarin and Minister of State for Finance, Hina Rabbani Khar, here on Thursday, the economic growth of 2.0 percent seems reasonable although it implies definite slippage against 4.1 percent growth of last year and this year’s target of 4.5 percent. Addressing the press conference, Shaukat Tarin said that the economic growth of Pakistan should be looked in the backdrop of global recession where positive growth is a rare exception. He said that microeconomic crisis, trade shock, global recession and domestic security challenges were the main hurdles in the way of economic growth of the country during the current financial year. He described the year 2008-09 as “Year of consolidation” for the revival of economy, saying that the current government inherited economic setbacks from the previous government. Advisor to Prime Minister on Finance, Shaukat Tarin said that the agriculture sector depicted a stellar growth of 4.7 percent, as compared to 1.1 percent witnessed last year and the target of 3.5 percent for the year. However, the overall FBR tax collection remained less than satisfactory and witnessed deceleration in real terms. Resultantly, the FBR tax collection to GDP ratio is likely to deteriorate to around 9 percent of GDP as against the target of bringing it in the vicinity of 10 percent of GDP. Tarin said that FBR would broaden its tax base by bringing those services and other sectors into the tax net who are still avoiding tax payment but contributing to the GDP. Output in the manufacturing sector contracted by 3.3 percent in 2008-09 as compared to expansion of 4.8 percent last year and target of 6.1 percent. Small and medium manufacturing sector maintained its healthy growth of last year at 7.5 percent. Large-scale manufacturing depicted contraction of 7.7 percent as against expansion of 4.0 percent in the last year and 5.5 percent target for the year. He added that the massive contraction has been because of acute energy outrages, security environment and political disruption in March 2009. The services sector grew by 3.6 percent as against the target of 6.1 percent and last year’s actual growth of 6.6 percent. Value-added in the wholesale and retail trade sector grew at 3.1 percent as compared to 5.3 percent in last year and target for the year of 5.4 percent. Finance and insurance sector witnessed registered negative growth of 1.2 percent in 2008-09 he said adding that the performance of the sector shows that Pakistan’s financial sector was integrated in the world economy and is feeling the heat of the crisis plaguing international financial markets. He said that the transport sector and communication sub-sector depicted a sharp deceleration in growth to 2.9 percent in 2008-09 as compared to 5.7 percent of last year. Pakistan’s per capita real income has risen by 2.5 percent in 2008-09 as against 3.4 percent last year. Per capita income in dollar terms rose from $1042 last year to $1046 in 2008-09, thereby showing marginal increase of 0.3 percent.

Advisor to Prime Minister on Finance, Shaukat Tarin said that total investment declined from 22.5 percent of GDP in 2006-07 to 19.7 percent of GDP in 2008-09. He said that fixed investment decreased to 18.1 percent of GDP from 20.4 percent last year adding that private sector investment was decelerating persistently since 2004-05 and its ratio to GDP declined from 15.7 percent in 2004-05 to 13.2 percent in 2008-09. Public sector investment to GDP ratio has risen persistently from 4.0 percent in 2002-03 to 5.6 percent in 2006-07. However, it declined to 4.9 percent in 2008-09. National savings rate has declined to 14.4 percent of GDP in 2008-09 as against 13.5 percent of GDP last year. Domestic savings also declined substantially from 16.3 percent of GDP in 2005-06 to 11.2 percent of GDP in 2008-09.

The overall foreign investment during the first ten months has declined by 42.7 percent and stood at $2.2 billion as against $3.9 billion in the comparable period of last year. Foreign direct investment private showed some resilience and stood at $3205.4 million during July-April (2008-09) as against $3719.1 million in the corresponding period of last year, thereby showing a decline of 13.8 percent. Private portfolio investment on the other hand showed a net outflow of $451.5 million as against net flow of $98.9 million during the same period of last year. During 2007-08, the SBP continue with tight monetary policy stance thrice rising the discount rate and increased the cash reserves requirements and statutory liquidity requirements. During July-May 2008-09 money supply (M2) declined 4.59 percent against 8.96 percent last year.

Net domestic assets (NDA) was limited to just Rs 442.1 billion as compared to Rs.655.4 billion in the FY 08. During FY 09, the slow expansion in private sector credit has led to slow growth NDA of the banking system. This is shared both by NDA of SBP and Scheduled Banks. Net foreign assets of the banking system recorded a decline of over Rs.227.1 billion during the first ten months of the current fiscal year to May 9, he added. He said that the government’s budgetary borrowing from the banking system decreased by Rs.339.9 billion during July-May 2008-09 against an increase of Rs.360.4 billion in the same period of last financial year. The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 22.3 percent during July-April 2008-09, as against 10.3 percent in the comparable period of last year. The food inflation is estimated at 26.6 percent and non-food 19.0 percent against 15.0 percent and 6.8 percent in the corresponding period of last year, he added. The Sensitive Price Indicator has recorded increase of 26.3 percent during July-April 2008-09 against 14.1 percent of last year. He attributed the increase in inflation rate to the increase in food price inflation. It is expected that the average inflation for the year (2008-09) as measured by CPI will be close to 21.0 percent, he added. Advisor to Prime Minister on Finance, Shaukat Tarin said that overall exports recorded a negative growth of 3.0 percent during July-April 2088-09 against the positive growth of 10.2 percent in the corresponding period of last year. Imports registered a negative growth of 9.8 percent in July-April 2009 as compared to the same period of last year, he added. Workers’ Remittances totalled $6355.6 million in July-April 2008-09 as against $5319.1 million in the comparable period of last year, depicting an increase of 19.5 percent. Tarnin said that Foreign Exchange Reserves amounted $11.6 by the end of May 2009, reserves held by State Bank of Pakistan stood at $8.28 billion and reserves by banks stood at $3.32 billion.

Tarin said that the government has initiated survey on poverty which would be completed in next three months. He said that the government, under its safety net programme, has already initiated Benazir Income Support Programme and Punjab Food Support Programme to help the vulnerable section of the society. To a question, he said that the government would allocate considerable allocations for the internally displaced persons and will not only rely on foreign assistance and donors. He said that the government expects Rs.180 billion from Friends of Democratic Pakistan in the forthcoming budget adding that IMF would also provide next tranche of grant by June end. He said that Federal Bureau of Statistics will be given autonomy and linked with reputed international organization to make its data reliable, transparent and acceptable to all stakeholders.

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