Return to growth trajectory
KHALEEQ KIANI — PUBLISHED ABOUT 11 HOURS AGO
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AS the PML-N government completes its third year next month, it plans to change gears from fiscal stabilisation to economic growth, not much distracted by severe political assault by a hyper-active opposition but in response to it.
“Time is now to expend requisite efforts towards achieving higher growth trajectory while consolidating stabilisation gains,” according to the government’s growth strategy for the next two years of it rule.
That fits well with the political strategy of the PML-N that expects to go into next elections with a performance card in hand.
[HR][/HR]The focus in the next budget would be on removing constraints currently stifling higher growth potential
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Notwithstanding academic debates over the quality of economic performance and merits and demerits of choices adopted by the government, the fact is that the energy situation has improved — in terms of increased and stable supply.
It is no surprise that to trigger economic growth, the coming budget needs to remain focused on energy.
**“By 2018 some 16,000MW of electricity generation and 1500mmcfd (million cubic feet per day) of gas and major infrastructure projects are currently in hand to spur growth,” **noted a presentation made to the Federal Cabinet on April 27 that was called to clear Budget Strategy Paper (BSP) 2016-17 and medium term budgetary framework (MTBF) 2016-18.
The government expects that investments under China-Pakistan Economic Corridor (CPEC) and the recent gains in improving security environment would attract private investors to contribute their share in accelerating the growth.
So, the target is to achieve the 6.2pc economic growth (rate of GDP) in 2016-17 and 7pc by 2018. The current year’s growth target of 5.5pc would be missed and hover around 5pc.
The focus would, therefore, remain on removing constraints currently stifling higher growth potential. And that is where the PML-N’s signature projects — gas and power, roads and rails — dovetailing with CPEC coming into play.
The government plans to jack up fixed investment to GDP ratio to 19.5pc during next fiscal year, up from current year’s 16.1pc.
This would mean a fixed investment increase to Rs6.79tr in 2016-17 from current year’s estimated Rs4.95tr, up over 37pc. The ratio is projected to go further up to 21.1pc in 2017-18 with Rs8.355tr investment.
The inflation rate measured by Consumer Price Index is expected to stay flat at 6pc and unemployment rate to reduce from 5.3pc now to 4.8pc next year and down to 4.5pc the following year.
The size of the economy (GDP at current market price) has been projected to increase from Rs30.672tr to Rs34.801tr in 2016-17 and further to Rs40tr in 2017-18.
Similarly, foreign exchange reserves are targeted to further improve to $23.6bn next year and tax-to-GDP to ratio to touch 12.5pc. This is targeted to be achieved mainly through over 20pc increase in FBR’s tax revenue to Rs3.735tr against current year’s Rs3.1tr.
While accounting for normal growth (inflation plus GDP growth) of about 12pc, over 8pc growth in tax revenue is projected to come from additional tax measures and better tax administration. The tax base will be widened by the removal of non-essential SROs and new measures.
The fiscal deficit for next fiscal year is projected to range between 3.8-4pc of GDP with uncertain expenditures on security-related development expenditures in the tribal region, estimated at Rs100bn or so.
The government is committing to the overarching target to contain fiscal deficit at 3.5pc of GDP in 2017-18 through further cuts in subsidies by increasing power sector recoveries and loss reduction and efficient tax administration.
The debt-to-GDP ratio is projected to fall below the 60pc benchmark at 59.4pc.
The country’s total development allocations are estimated to grow by 14pc in 2016-17 to Rs1.497tr from current size of Rs1.315tr. The Federal Public Sector Development Programme (PSDP) would be increased by Rs100bn to Rs800bn (including Rs100bn block allocation for security related development) against current allocation of Rs700bn, up 14.3pc.
The defence expenditure is expected to grow by 12pc to Rs 860bn next year from the current Rs781bn. The current year’s PSDP may be cut by around Rs100bn, keeping in mind around 42pc disbursements so far.
Likewise, the cumulative annual development plans of the provinces would also go up to Rs696bn from revised estimates of Rs600bn, up almost Rs97bn.
Of the total public sector investment (both federal and provincial) would involve an expenditure of Rs210bn on energy and Rs470bn on infrastructure - signature projects of the PML-N while social sector would consume about Rs545bn to be mostly funded by the provinces. All other sectors would get investments of about Rs280bn, both from federal and provincial kitties.
A total of $3bn investment (both public and private) is expected in gas projects, significantly higher than $880m of current year. Likewise, power projects are targeted to attract $10.5bn investment up from $7.3bn investment his year.
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Published in Dawn, Business & Finance weekly, May 2nd, 2016*
