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GDP achieves 8.4pc growth Economic Survey 2004-05 released: •Trade deficit and inflation cast shadow on economy •Foreign investment grows •Per capita income increases**
By Khaleeq Kiani
ISLAMABAD, June 4: Pakistan’s economy displayed broad-based positive trends during 2004-05 with GDP growing at 8.4 per cent but inflation, trade deficit and current account balance continued to cast shadow on it, reveals Economic Survey 2004-05. With the highest growth rate in two decades, backed by agricultural, manufacturing and services sector growth of 7.5 per cent, 12.5 per cent and 7.9 per cent, respectively, Pakistan has emerged as the third fastest growing economy in Asia after China and Singapore.
Prime Minister Shaukat Aziz told journalists economic policies introduced by the government a few years ago had started yielding results and their fruits had started reaching the people.
However, he conceded that now the real challenge was to control inflation and sustain growth. Advisor to the Prime Minister on Finance and Revenue, Dr Salman Shah, who formally launched the survey, said milestone of the year was Pakistan’s graduating from the IMF’s Poverty Reduction and Growth Facility without post-programme monitoring.
However, he added the government would have to control inflation and bring it back to five per cent after next fiscal year. Dr Ashfaq Hassan Khan, Economic Advisor and Director- General Debt Office listed a series of events which he described as Pakistan’s ‘multiyear firsts’.
According to him, Pakistan’s real GDP growth of 8.4 per cent in 2004-05 is the fastest in two decades, its per capita income crossed $700 mark, it achieved highest ever production of cotton and wheat, witnessed the largest ever expansion of private sector credit, became fourth sovereign to issue an Islamic Bond and its public and external debt burden declined to their lowest in decades.
But, he said, inflation at 9.3 per cent was the highest in eight years. The trade deficit during nine months of the year increased to $4.2 billion as compared to $1.6 billion last year, as imports stood at $14.4 billion against exports of $10.2 billion.
Similarly, current account balance slipped into red and stood at $1.358 billion this year after posting surpluses for three consecutive years, he added.
The Economic Survey enumerated a long list of macroeconomic successes. They included the fastest pace in real GDP growth, a double-digit growth in per capita income reaching $736, investment upturn gaining a stronger footing, particularly private sector investment.
There was also an unprecedented increase in credit to private sector for second year in a row, sharp increases in the consumption of oil, gas, electricity and coal reflecting rising level of economic activity; fiscal deficit remaining on target despite Rs50 billion shortfall in revenue, higher than targeted collection of taxes, a high double-digit growth in exports and imports, workers’ remittances maintaining their momentum, a continued accumulation of foreign exchange reserves and stability in the exchange rate, a sharp decline in the public and external debt burden, privatization programme continuing to maintain its robust momentum, launching of first ever Islamic Bond in international capital markets and the performance of Eurobond remaining in line with the markets with the spread over US Treasury undergoing further compression.
AGRICULTURE: Agriculture sector grew by 7.5 per cent in 2004-05, higher than actual growth of 2.2 per cent last year and a target of four per cent.
Major crops, accounting for 37 per cent of agricultural value added, grew by 17.3 per cent as against 1.9 per cent last year. Cotton production increased by 45.5 per cent, wheat production rose by 8.5 per cent and rice production by 2.9 per cent. But sugarcane production decreased by 15.2 per cent.
MANUFACTURING: Overall manufacturing registered a growth of 12.5 per cent in 2004-05 as against 14.1 per cent last year and surpassed its target by 2.3 per cent.
Large scale manufacturing recorded a growth of 15.4 per cent as against 18.2 per cent last year and the target of 12.2 per cent, the second highest growth achieved in three decades.
Small-scale manufacturing continued to grow at an estimated 6.3 per cent rate in 2004-05.
The construction sector is provisionally estimated to grow by 6.2 per cent in 2004-05 as against a decline of 6.9 per cent last year.
MINING AND QUARRYING: The output of this sector grew by five per cent this year as against the rise of 3.8 per cent last year.
FOREIGN DIRECT INVESTMENT: Foreign direct investment has witnessed an increase of 17.2 per cent in the first ten months whereas net foreign private investment stood at $1.027 billion against $629.1 million last year.
PRIVATIZATION: By the end of April 2005, Pakistan completed or approved 146 transactions at gross proceeds of Rs148.3 billion.
SERVICES: Services sector registered a growth of 7.9 per cent in 2004-05 as against six per cent last year and the target of 6.2 per cent.
Wholesale and retail trade, finance and insurance sub-sectors grew by 12 and 21.8 per cent, respectively, against 8.1 per cent and 4.5 per cent last year.
The commodity producing sectors (agriculture and industry) and service sector contributed equally to the real GDP growth. The commodity producing sector contributed 50 per cent to this year’s growth while the remaining 50 per cent contribution came from services sector.
PER CAPITA INCOME: The per capita income has grown at an average rate of 13.5 per cent per annum during the last three years rising from $579 in 2002-03 to $657 in 2003-04 and further to $736 in 2004-05.
TOTAL INVESTMENT: Total investment was provisionally estimated at 16.9 per cent against last year’s 17.3 per cent. Fixed investment as percentage of GDP is estimated at 15.3 per cent as against 15.6 per cent last year.
However, private sector investment as percentage of GDP rose to 10.9 per cent. Major growth in investment by private sector is witnessed in agriculture (10.2 per cent) manufacturing (23.9 per cent) mining and quarrying (15.2 per cent) construction (79.9 per cent) transport and communication (42.2 per cent) and wholesale and retail trade (27.4 per cent).
Public sector investment registered a marginal decline of 0.4 per cent. A major decline (26.6 per cent) has taken place in manufacturing, mining and quarrying (five per cent) and transport and communication (3.3 per cent).
FISCAL DEVELOPMENT: During the last six years, tax collection has increased by 70 per cent and the overall fiscal deficit was reduced to three per cent in 2004-05.
The revenue deficit has been narrowed from three per cent of GDP to 0.2 per cent in 2004-05. The CBR collected Rs451.1 billion as net revenue receipts during July-April 2004-05.
Total expenditure is estimated at Rs1.050 trillion in 2004-05 which is 9.9 per cent higher than last year. Of this, current expenditure is estimated at Rs866 billion (82.4 per cent of total expenditure) while development expenditure amounted to Rs188.0 billion (17.6 percent of total outlay).
The current expenditure which was 14.0 per cent of GDP last year has declined to 13.2 per cent in the current year.
MONEY AND CREDIT: The broad money (M2) showed a growth of 13.1 per cent (Rs325.6 billion) during July-March 2004-05 as compared to the full year revised target of 14.5 per cent (Rs360 billion) and the actual growth of 12.3 per cent (Rs254.8 billion) in the corresponding period of last year.
A massive increase in the NDA was mainly triggered by substantial private sector credit off-take (Rs370.1 billion). The NFA of the banking expanded by Rs51.6 billion during July-March 2004-05 as compared to Rs50.4 billion in the same period of last year.
INFLATION: For the first ten months of the current fiscal year (July 2004 to April 2005), inflation as measured by the Consumer Price Index averaged 9.3 per cent against 3.9 per cent for the corresponding period last year.