Finance ministry rejects World Bank’s projection for Pakistan’s GDP growth

ISLAMABAD: The government has rejected the World Bank’s projection about Pakistan’s Gross Domestic Product (GDP) growth rate for the current and upcoming fiscal year, saying it was based on unrealistic assessment and that the GDP growth rate for the fiscal year 2021/22 would go up close to 5 per cent against the World Bank’s forecast of 3.4 per cent.

Referring to a recent report published by the World Bank, the Ministry of Finance said that the World Bank’s growth estimates of 3.5 per cent in FY2021 against the National Accounts Committee (NAC) estimates of 3.94 per cent, released by the Pakistan Bureau of Statistics (PBS) were also based on unrealistic assessment.

The provisional estimate of GDP growth for FY 2021 was 3.94 per cent based on 2.8 per cent growth in Agriculture, 3.6 per cent growth in Industry and 4.4 per cent growth in services.

However, LSM growth was provisionally taken as 9.3 per cent in NA for estimating GDP growth 3.94 per cent. LSM data is available with two months lag and the recent data released by PBS on LSM recorded growth of 15.2 per cent for FY 2021, a statement issued by the finance ministry said.

Further, recent data on crops mentioned by the Federal Committee on Agriculture (FCA) suggests that the production of important crops is higher than taken in 2021.

Wheat production is recorded at 27.5 million tonnes as compared to 27.3 million tonnes, while production of Maize is 8.9 million against 8.5 million tonnes released by PBS for estimating GDP growth 3.94 per cent.

“After incorporating the latest available information, the GDP growth in FY2021 will improve further above 3.94 per cent as compared to 3.5 per cent estimates by the World Bank,” the statement said.

For FY2022, WB projection of 3.4 per cent for GDP growth is again underestimated. It is pertinent to mention that the economy of Pakistan has shown V shaped recovery in FY2021 without creating any external and internal imbalances.

The government is committed to ensure that the growth momentum remains intact with macroeconomic stability. Thus, it is expected that GDP growth for FY 2022 will remain close to 5 per cent.

In this context it is worth mentioning that the global GDP growth rate in 2020 was recorded at -3.2 per cent and is projected to grow by 6.0 per cent and 4.9 per cent in 2021 and 2022 respectively.

On the basis of fast recovery expected globally, especially Pakistan’s main trading partners, we expect it will be translated to the domestic economy, as well.

Domestically, production of important crops are encouraging like sugarcane 87.7 million tonnes (81 million tonnes last year), rice 8.8 million tonnes (8.4 million tonnes last year), maize 9 million tonnes (8.9 million tonnes last year) and cotton 8.5 million tonnes (7.1 million tonnes last year).

While the target for wheat is set at 28.9 million tonnes (27.5 million tonnes last year). Further, the government is taking measures to enhance agriculture performance such as the Agriculture Emergency Programme, Agriculture Transformation Plan, Prime Minister Kharif Package, incentives to the livestock sector and increase in wheat support price.

Better crop production together with government’s measures, it is expected that the agriculture sector will perform better.

Within the industry, LSM recorded a growth of 2.3 per cent in Jul, FY2022. Due to the closure of industrial activities during holidays in Eid-ul-Azha and monsoon rains which spread over 15 days.

Further, domestic cement dispatches increased by 3.92 per cent to 11.279 tonnes during July-September FY22 (10.853 tonnes last year).

Car production and sale increased by 111.7 per cent and 92.8 per cent, respectively, during July-August FY22, while tractor production and sale increased 38.7 per cent and 18.5 per cent, respectively.

Similarly, the total oil sales increased 21 per cent to 5.8 million tonnes during July-September FY22 (4.8 million tonnes last year). The performance reflects robust economic activities without any disruption.

To further boost the industrial sector, government is taking all possible measures like special package for construction sector; relief measures in form of tax exemptions to automobile, Special Economic Zones, Special Technology Zones, special facilitation for SMEs in form of risk sharing in collateral-free lending, sales tax concessions to cottage industry, concessional rate of refinance schemes include EFS and LTFF, special electricity tariffs for industrial use, making CPEC the platform where industries will be relocated, reduction in tax on textile products and tax relief to oil refineries so that they could turn to Euro-5 fuel.

These measures will help in significant growth in industry.

Overall, the commodity producing sector will perform better and its spillover impact would be realised on the services sector.

The current data for June 2021 shows that YoY growth in Assets remained 18.9 per cent. Further, an increasing trend is seen in both advances and deposits of banks.

Thus, the services sector is projected to continue its growth on account of better performance of the agriculture industry and the financial sector.

Further, mass vaccination of the general public will also have a significant impact on the recovery of other private services, in particular, and services, in general.

Regarding monetary and fiscal tightening, it is to mention that, on one hand the government is tightening monetary and fiscal policies to contain the demand pressures, while on the other it is encouraging growth supporting policies as mentioned above.

With regard to pressure on external accounts, it is pertinent to mention that the economy is in recovery phase, growing economy and exports require import of capital goods which leads to increase in imports.

Due to the government policies, the exports of goods and services will maintain its trend on an average of $3 billion/month and remittances $2.5 billion/month, taking into account the other secondary and primary income flows, trade deficit and current account will remain in sustainable range.

Moreover, the State Bank of Pakistan (SBP) is proactively taking measures to curb non-essential and luxury imports and other foreign exchange regulatory measures for the sustainability of the external sector.

Regarding inflation, it is to mention that the present government has taken various policy initiatives, administrative actions, and relief packages to control the inflationary pressure which has been mainly derived from global market commodity prices.

The higher international food prices were transmitted to countries, net importers of food. But due to prudent and pro poor measures taken by the government of Pakistan, proportionate rise of the commodities, i.e., sugar, palm oil, soybean oil, wheat and crude oil was not passed on to the domestic consumers.

The government is also expanding the network of Sasta Bazaars and Utility Stores outlets for the provision of smooth supply of daily use items. The National Price Monitoring Committee (NPMC) and District Price Control Committees are actively monitoring the prices of essential items all over the country to ensure their availability at reasonable prices.

The government is also committed to establish USC outlets all across the country in order to provide relief to common man.

In this regard, USC was already directed to establish USC outlets in Balochistan. All these measures will help to contain the inflationary pressure in the country.

To ensure the smooth supply of essential food items and to reduce the inflationary pressures, the government is building strategic reserves.

In addition, the government’s agriculture facilitation measures and encouraging performance of major and minor crops will further ease out the inflationary pressures as it will further increase supply of food items in the market.

The prices in the international market are on a declining trend during the month of September 2021, compared with August 2021, i.e., sugar zero per cent, soybean oil -2.4 per cent and wheat -4.6 per cent, which augur well for the domestic prices of the country.

With regard to crude oil prices, the Energy Information Administration (EIA), US expects Brent prices will remain around $70/b during the fourth quarter of 2021 (fourth quarter of 2021).

“In 2022, we expect that growth in production from Opec+, US tight oil, and other non-Opec countries will outpace slowing growth in the global oil consumption and contribute to Brent prices declining to an annual average of $66/b.

“Thus, based on the government’s proactive policies to reduce the inflationary pressure together with the government’s growth-oriented policies, we expect that Pakistan will achieve its growth target with price stability.”