An upbeat Finance Minister, claiming marked improvement in macro-economy, announced 6.4 percent GDP growth for 2003-04 and an extraordinary 4.2 percent cut in poverty from 2000-01 through 2003-04.
Enumerating the achievements, Shaukat Aziz all smiling spoke of higher than targeted growth rate accompanied by a 'stellar' rise in industrial production; a double-digit growth in per capita income; a strong upsurge in domestic investment; sharp increases in the consumption of electricity and gas; further fiscal consolidation; strong growth in exports and imports; a further strengthening of the external balance of payments; and a sharp decline in the country's debt burden.
The improved scenario was partly attributed to the overdue rebasing of national accounts from 1980-1981 to 1999-2000 and executed in 2003-04 after a gap of 24 years.
The Minister claimed that the rising trend in poverty had not only been halted but a reversal “has begun to take shape”. Other indicators representing the living conditions of the people, including education, have all shown remarkable progress.
The 'Economic Survey', a pre budget document, launched by the Finance Minister here on Friday gave a detailed picture of the economy.
GROWTH AND INVESTMENT
GDP GROWTH: Real GDP growth, once again, surpassed the target (5.3 percent) by a wide margin and grew by 6.4 percent in 2003-04 compared to last year's 5.1 percent. When compared with other developing countries in general and East and Southeast Asian countries in particular, Pakistan's growth performance has been quite impressive.
Developing countries grew, on average, by 6.1 percent, while East and Southeast Asian countries registered growth rates ranging from 1.1 percent to 5.5 percent in 2003-04. Only China, India and Thailand grew faster than Pakistan during this period.
Fiscal stimulus in the shape of large public sector spending and a conducive interest rate environment provided important support to this growth picture in Pakistan.
The growth is supported by 2.6 percent, 13.4 percent, and 5.2 percent growth rates in agriculture, manufacturing and services respectively for fiscal year 2003-04. The target was 5.3 percent, with agriculture and manufacturing growing by 4.2 percent and 6.8 percent.
GNP at factor cost exhibited a deceleration in growth from 7.9 percent in 2002-03 to 5.2 percent in 2003-04 mainly due to a decline of 30.5 percent in net factor income from abroad.
AGRICULTURE: The performance of agriculture fell short of the target by growing at 2.6 percent against the target of 4.2 percent and last year's achievement of 4.1 percent.
The slippage in agriculture target was mainly attributable to weak performance of both the major and the minor crops.
Major crops, accounting for 34 percent of agriculture value-added, grew by 2.8 percent against 6.9 percent rise in value-addition for last year and a target of 5.5 percent for 2003-04.
Minor crops, which contribute 12 percent of value-addition in agriculture, grew by 1.7 percent in 2003-04 against the growth target of 3.5 percent and a slight increase of 0.4 percent last year.
The performance of two major crops, cotton and wheat, was lacklustre as the cotton crop suffered from pest problems in southern Punjab while wheat production was adversely affected by lack of rain in March when the formation of wheat grain takes place.
The size of cotton crop was about 10 million bales against 10.2 million bales of last year. Wheat production is estimated at 19.767 million tons against the target of 20 million tons.
The performance of rice and sugarcane has been modest with rice crop increasing by 8.3 percent and sugarcane by 2.6 percent.
The livestock sub-sector, which accounts for almost one-half of overall value-addition in the agriculture sector (49 percent) witnessed a modest growth of 2.6 percent in 2003-04 against the target of 3.0 percent and an actual achievement of 2.8 percent of last year.
MANUFACTURING: One of the most important developments of the year has been the sharp acceleration in manufacturing growth. Overall manufacturing grew by 13.4 percent in 2003-04 against a target of 7.8 percent and last year's 6.9 percent.
Large-scale manufacturing registered the highest ever growth of 17.1 percent against the target of 8.8 percent and last year's 7.2 percent. Over the last four years, the large-scale manufacturing has grown at an average of 10 percent per annum.
Improvements in the macroeconomic environment, a decline in the cost of capital, the availability of consumer financing at affordable rate and strong growth in exports have been responsible for this unprecedented growth in large-scale manufacturing.
The large-scale manufacturing accounted for 68 percent of overall manufacturing. An impressive and broad based growth helped overall manufacturing to grow by 13.4 percent, against a target of 7.8 percent and last year's growth of 6.9 percent.
Small-scale manufacturing continued to grow at an estimated 7.5 percent rate in 2003-04.
CONSTRUCTION: Another star performer has been the construction sector, registering a growth of 7.9 percent against the target of 5.4 percent and last year's growth of 3.1 percent.
The government had taken various budgetary and non-budgetary measures in Budget 2003-04 to boost this sector which now responded positively.
The construction sector grew by 7.9 percent against 3.1 percent of last year and a yearly target of 5.4 percent. The electricity and gas distribution sector registered a massive increase of 22.5 percent against a decline of 2.6 percent last year and a yearly target of 5.3 percent.
The services sector grew by 5.2 percent against 5.3 percent of last year.
The wholesale & retail trade and transport, storage & communication sub-sectors grew by 8 percent and 3.9 percent respectively against 5.9 percent and 4 percent of last year.
The largest contribution to the real GDP growth rate of 6.4 percent came from the commodity producing sector (3.6 percentage points). Within the sector, the industrial sector alone contribute 3.0 percentage points with the major share coming from the manufacturing sector (2.2 percent).
The services sector contributed 2.8 percentage points of 43 percent to real GDP growth.
As far as composition of the GDP is concerned, the industrial sector improved its share from 22.6 percent to 22.9 percent between 1999-2000 and 2003-04. Due to tremendous growth in the recent past the share of the manufacturing sector increased from 14.8 percent in 1999-2000 to 17.5 percent in 2003-04.
PER CAPITA INCOME: The sharp rise in per capita income, which was witnessed last year, continued during 2003-04 as well. Against an annual average rate of 1.4 percent in 1990s, per capita income grew at an average rate of 13.9 percent per annum during the last two years (2002-04) and 12 percent during 2003-04.
The per capita income in dollar terms increased from $526 in 1999-2000 to $652. In 2003-04, an increase of 24 percent in last four years.
INVESTMENT: Total investment picked up sharply to 18.1 percent of GDP in 2003-04 against 16.7 percent of last year. Fixed investment also rose sharply to 16.4 percent of GDP against 14.8 percent of last year.
Private sector investment also increased from 11.2 percent to 11.7 percent of GDP. Public sector investment improved significantly by moving from 3.6 percent of GDP of last year to 4.6 percent of GDP this year.
Fixed investment in rupee term grew by 25 percent this year as against 4.9 percent last year. What was highly encouraging was the significant rise in private sector investment, which grew by almost 18 percent this year against 9 percent of last year – twice as fast as of last year. Public sector investment, on the other hand, grew by 54 percent this year.
Another important element to note was that private sector investment in large-scale manufacturing as well as in the construction, both grew by 40 percent each, this year.
Improvement in macroeconomic environment, decline in cost of capital, consistency and continuity in policies, stable exchange rate environment, etc, have been responsible for the surge in private sector investment.
Private sector real fixed investment grew by 7.9 percent as against an increase of 5.2 percent last year.
Public sector investment also accelerated by growing 40.8 percent in 2003-04. Most importantly, private sector real investment in large scale manufacturing registered an extraordinary growth of 25.4 percent in 2003-04, indicating a sharp rise in private sector confidence on the economy.
Three other sectors registered visible increase in overall investment. These included construction 15 percent, transport and communication 32.7 percent and ownership of dwelling 25 percent.
National savings as a percentage of GDP remained flat at around 20 percent over last two years mainly on account of significant improvement in the current account balance.
The national savings rate increased by 8.3 percentage points of GDP since 1989-99. Domestic savings stood at 17.8 percent of GDP in 2003-04 against 16.8 percent of GDP last year.
INFLATION: Overall inflation averaged 3.9 percent during the first 10 months of the fiscal year as against 3.3 percent of the same period of last year.
Food inflation averaged 4.9 percent as against 3.1 percent of last year. Much of the surge in the food inflation over last year has been due to both demand and supply factors resulting in an increase in the prices of wheat, wheat flour, rice, meat, edible oil and onion.
The government took various measures to improve the supply situation of wheat including the import of one million tons wheat with a concurrent wheat export ban.
MONETARY POLICY: The State Bank of Pakistan (SBP) continued with an easy monetary policy stance during the year with a view to reinforcing the growth momentum that had picked up last year.
Accordingly, the interest rate environment not only remained investor-friendly but middle class borrower also benefited from such environment. During July-March 2003-04, money supply grew by 12.3 percent as against the target of 11.1 percent and last year's growth of 12 percent in the same period.
Unlike previous two years, when the bulk of the monetary expansion resulted from a strong build-up in the net foreign assets of the banking system, this year saw an unprecedented increase in private sector credit amounting to Rs 245 billion during the first nine months of the fiscal year against an increase of Rs 107 billion during the same period last year.
This reflected a renewed private sector confidence in the basic macroeconomic fundamentals of the country.
As a result of the easy monetary policy stance, the weighted average lending rate declined from 7.58 percent in June 2003 to 4.69 percent in March 2004. The yield on 6-month Treasury Bills remained stable at 1.6 percent during this year. “Let me also state that as a result of the monetary policy pursued over last three years, the weighted average lending rate declined from 13.74 percent in June 2001 to 4.69 percent in March 2004 – a decline of over 9 percentage points, resulting in significant decline in the cost of capital.”
STOCK MARKET: Another land mark achievement of this year has been the impressive growth in the share index of Karachi Stock Exchange (KSE). KSE index increased by 2027 points, or almost 60 percent, rising from 3403 points on June 30, 2003 to 5430 points on April 30, 2004.
The aggregate market capitalisation also increased by 92 percent, rising from $12.9 billion to $25 billion.
FISCAL POLICY: Pakistan made considerable gain on fiscal side during 2003-04. The overall fiscal deficit declined from 3.7 percent of GDP in 2002-03 to 3.3 percent in 2003-04. The CBR was targeted to collect Rs 510 billion this year.
All available information suggests that it will achieve the target.
Another important development on fiscal side was the near-elimination of revenue deficit (total revenue minus current expenditure) in 2003-04. Over the last two years, revenue deficit had declined from Rs 76 billion (1.3 percent of GDP) to Rs 13.3 billion (0.2 percent of GDP).
It may be recalled that Fiscal Responsibility Law envisaged elimination of revenue deficit by 2007-08. The target has almost been four years in advance.
PUBLIC DEBT: As a result of considerable improvement on fiscal side, the public debt situation improved immensely. This year the pace of accumulation of public debt slowed to 2.8 percent.
Public debt declined from 75.2 percent of GDP last year to 69.7 percent this year, a sharp decline of 5 percentage points in one year.
BALANCE OF PAYMENTS: Exports grew by 13.1 percent during July-April 2003-04 and are expected to cross the target of $12.1 billion.
Imports grew by 19 percent during the first 10 months of the fiscal year. Given the rising level of economic activity, the import target of $12.8 billion is likely to be surpassed with a projection of over $14 billion for the entire year.
Most importantly, non-food non-oil imports were up by almost 32 percent this year. The exceptionally strong growth in non-food non-oil imports was one of the leading indicators of a surge in domestic economic activity.
REMITTANCES: The inflow of workers remittances continued to maintain its momentum. Remittances were targeted at $3.6 billion for the current fiscal year or $300 million per month. During the first 10 months (July-April) of the current fiscal year, the flow of remittances was $3.21 billion or $321 million per month.
Given the average monthly trend of inflows, the year is going to end with remittances of $3.8 billion.
CURRENT ACCOUNT BALANCE: Sustaining a current account surplus for the third year in a row has been another major achievement of this year. The current account balance excluding official transfers remained in surplus at $1369 million or (1.4 percent of GDP) during July-March 2003-04.
FOREIGN DIRECT INVESTMENT: Pakistan succeeded in attracting $760 million in FDI during July-April 2003-04 against $696 million in the same period of last year, thereby registering an increase of 9.3 percent. By the end of the fiscal year, FDI is expected to cross $1.0 billion on account of the issuance of two cellular phone licences amounting to $291 million each–half proceeds of which are expected to be received before the end of the fiscal year.
The bulk of the FDI came in the oil and gas, transport and communications and banking sector.
FOREIGN EXCHANGE RESERVES: By end-April 2004, foreign exchange reserves stood at $12.5 billion. During the year, Pakistan added $1.8 billion to its reserves despite pre-payment of expensive debt.
EXTERNAL DEBT: Until a few years ago, Pakistan was facing serious difficulties in meeting its external debt obligations. Following a credible debt reduction strategy, Pakistan has not only succeeded in reducing the stock of external debt and liabilities but at the same time built up a substantial stock of foreign exchange reserves.
The stock of debt was as high as $37.9 billion at the end of the 1990s but declined to $35.8 billion by end March 2004. As percentage of GDP, external debt and liabilities stood at 51.7 percent in end June 2000, declined to 43 percent in June 2003 and further to 37.8 percent by end March 2004 – a decline of almost 14 percentage points of GDP in just less than four years.
External debt and liabilities as percentage of foreign exchange earnings declined from 297 percent in 1999-2000 to 181 percent in 2002-03 and further to 169 percent by end-March 2004.
These statistics suggest that Pakistan's external debt burden has declined substantially over the last four years and is now fast approaching sustainable levels.
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