Pakistan’s GDP growth at a 9-year low of 3.3%

ISLAMABAD: Pakistan’s GDP grew by 3.3 per cent in fiscal year ending June 2019 (FY19), lowest in 9 years, compared to 5.5 per cent in FY18 (revised) and last 6-year average GDP growth of 4.5 per cent.

Pakistan’s Ministry of Finance published the Annual Pakistan Economic Survey for the fiscal year 2018-19 Monday.

Overall economic growth slowed down amidst monetary and fiscal tightening by Government to curb inflation and unnecessary imports which eventually led to contraction in aggregate demand/lower GDP.

In terms of regional comparison (South Asian players), Pakistan fell behind regional players having average GDP growth rates of 5-6 per cent, according to Economic Survey.

Similarly, Pakistan per capita income dropped by 9 per cent to $1,497 in fiscal year 2018-19 (up by 11 per cent in Rupee terms) due to sharp devaluation of 19 per cent in Pak-rupee vs. US dollar.

Fiscal year 2019-20 is likely to be a stabilization year for Pakistan’s economy as PTI Government has already signed Staff Level Agreement with IMF and its board approval is expected soon. Analysts believe that Government has already completed most of the prior actions of IMF including interest rates (up 650bps since Jan 2018) and currency floatation (bring it in line with REER, down 30% since Dec 2017).

The prior action which is remaining (Budget 2019-20) will be presented on Jun 11, 2019 and will focus on fiscal consolidation, aggressive tax collection (Rs 5.5-5.7 trillion), and controlling expenditure.

On external account side although Current Account Deficit (CAD) is down 27 per cent YoY to $11.5 billion in 10 months and analysts believe government should curtail it further in order to ease pressure on FX reserves, in line with IMF conditions.

Key reason behind unsustainable CAD is trade balance which analysts believe will further improve in FY20 given deferred oil facility from `Saudi Arabia and Islamic Development Bank (IDB) to the tune of $3.2 billion and $1.2 billion. As a result analysts estimate, FY20 CAD will come down to 2.7 per cent of GDP or $7 billion (vs. 4.7 per cent of GDP or $13 billion likely in FY19).

Government policy on privatization, energy sector reforms, and investment will also decide the economic direction going forward, the analyst claimed.