Spearhead Analysis – 10.04.2018

By Farrukh Karamat
Senior Research Coordinator, Spearhead Research

The National Accounts Committee (NAC) in its 99th meeting announced that the Gross Domestic Product (GDP) grew by 5.79 per cent during FY2017-18, lower than the growth target of 6.0 per cent set earlier. The NAC worked out the annual growth rate based on seven to eight months of data as a result of the government’s decision to advance the calendar of the budget year to April 27, 2018. The formal announcement of the provisional growth rate will be made on April 26, 2018 to coincide with the release of the Economic Survey of Pakistan for 2017-18. Despite the downward revision in growth, it remains the highest in almost a decade. The government has performed well on most metrics, and the fairly robust growth performance should provide the outgoing government with some political mileage in the forthcoming elections.

The economic growth rate while slightly below the earlier target of 6.0 per cent was better than the rates being projected by multilateral financial institutions. While the provisional growth rate is subject to variations based on the final results at the end of the current fiscal year, the growth shows the resilience of the economy in the face of often daunting odds, incidences of gross mismanagement and the ongoing political instability. However, the macroeconomic situation continues to remain vulnerable in the face of rising deficits and the huge public debt.

Around 66.4 per cent of the growth was contributed by the services sector, which continued to perform well – growth rates for services and agriculture remained on track, while the industrial sector growth missed the target. Despite being the highest in a decade, the growth rate remains insufficient to accommodate the rising youth population, as a growth of below 7 per cent is deemed inadequate to absorb the growing population.


  • The Per Capita Income was reported at around Rs.180,000, up over the Rs.162,000 for FY2016-17, (a growth of 11 per cent) based on the provisional results of the Population Census 2017. However, taking into account the almost 10 per cent devaluation of the Pak Rupee in recent months, the Per Capita Income rose marginally by around 0.6 per cent.
  • The agriculture sector witnessed growth of 3.81 per cent, exceeding the target of 3.5 per cent in the last fiscal year.
    • Major crop production was estimated to be up by 3.57 per cent vs. a target of 2.0 per cent – growth witnessed in rice 8.70 per cent; sugarcane 7.40 per cent; and cotton 11.8 per cent; while declines were witnessed in wheat 4.4 per cent and maize 7.1 per cent.
    • Livestock registered a growth of 3.76 per cent in line with a target of 3.8 per cent.
    • Fishery sector grew by 1.63 per cent in line with the target; and forestry sector grew 7.17 per cent vs. a growth target of 10 per cent.
  • Industrial sector growth was 5.8 per cent vs. a target of 7.3 per cent, and last years’ growth of 5.43 per cent.
    • Mining and quarrying sector grew by 3.04 per cent vs. a target of 3.5 per cent.
    • Manufacturing growth was 6.13 per cent vs. a target of 6.4 per cent and last years’ growth of 5.82 per cent.
      • Specifically, Cement grew by 12 per cent, Tractors 44.7 per cent, Trucks 24.41 per cent and Petroleum products 10.26 per cent.
    • Electricity and gas sectors were up 1.84 per cent against the target of 12.5 per cent. and the construction activity was up 9.13 per cent compared to 9.84 per cent last fiscal year, missing its target of 12.1 per cent.
    • Services sector grew 6.43 per cent in FY2017-18 vs. a target of 6.4 per cent and last years’ growth of 6.46 per cent.
      • General government services increased by 11.42 per cent against a target of 7 per cent – driven mainly by rise in salaries and inflation.
      • Finance and Insurance increased by 6.13 per cent against the target of 9.5 per cent, housing services by 4 per cent against 3.9 per cent, transport, storage and communication 3.58 per cent against 5.1 per cent.
      • Wholesale and retail trade sector grew at a rate of 7.51 per cent against the target of 7.2 per cent.

There was something else to cheer about as Pakistan’s exports rose to US$2.23 Billion in March, a YoY increase of 24.4 per cent or US$437 Million, compared to March 2017.

At the same time the Trade deficit widened by 17.3 per cent to US$27.3 B YoY, surpassing the amount projected for FY2017-18. The trade deficit during July-March was 106 per cent of the annual target of US$25.7 Billion, which has adverse implications for both the current account deficit and foreign exchange reserves.

  • Exports in the period July-March were up by 13.14 per cent to slightly over US$17 Billion, equal to 74 per cent of the annual export target of US$23.1 Billion for FY2017-18.
  • Imports during the same period were US$44.4 Billon, equal to 91 per cent of the annual target for FY2017-18.

The higher trade deficit has direct implications for foreign exchange reserves that dipped to a level of US$11.7 Billion in March 2018. The current account deficit target of US$9 Billion would be missed, as it is projected that current account deficit would be around US$15.6 Billion for FY2017-18.

There has been significant improvement in the economic performance in the wake of development of the CPEC related projects, improvement in power supply, progress in the war against terror and introduction of export subsidies. At the same time, the government has been relying on debt not just for building reserves, or initiating developmental projects but for meeting expenditure shortfalls and repatriations in the face of woefully inadequate saving and investment rates. With rising deficit levels and low levels of FDI, the country has limited options to correct the macroeconomic imbalances. A rapidly rising population with low levels of social sector development is likely to place additional pressures on the economy in the near-to-mid term. The recent announcement of the Amnesty Schemes and Tax rate reductions are not likely to achieve the objective of sustainable economic growth, especially given the threats from FATF and a deteriorating relationship with the United States. Internal capability and capacity needs to be enhanced to improve revenue generation and jump-start the manufacturing sector as an engine of growth to capitalize on regional connectivity.