Economic Survey FY12: Again an ordinary year


Relatively speaking, FY12 appeared better for the ruling incumbent government in terms of the GDP growth. As per the economic survey, Pakistan’s GDP growth is expected at 3.7% for FY12 – first times since FY08 the GDP has comprehensively crossed 3.0%. Within agriculture sector, cotton, rice & sugar production surged, which rendered good news for the industrial sector. The investment-saving data set once again appeared dismal in the current year. Total investments came in at 12.5% of GDP (lowest in the history of Pakistan) whilethe country’s saving rates also came in at an all time low of 10.7% of GDP. The investment-saving difference or current account deficit is projected at 1.8% of GDP, which seems to be difficult to finance through foreign savings due to global economic crisis and Pakistan’s deadlock with US on NATO supplies. Lastly, the government is projecting the fiscal deficit at 4.3% of GDP exclusive of Rs550bn worth of payments released to energy chains. If we account for these, the deficit is all set to come in at 7.0% of GDP.

Agriculture productions better despite floods

With the exception of wheat, majority of the cash crops posted impressive growth in the outgoing fiscal year. As per the economic survey, cotton production came in at 13.6mn bales, up from last year of 11.5mn bales, while rice production is estimated at 6.2mn tons, up from last year’s 4.8mn tones. The country also produced surplus sugar cane this year and its production came in at 58.0mn tons, up from 55.5mn tons in FY11. Due to favourable cash crops, prospects of sustaining exports and increasing industrial growth have increased, in our view.

Power load-shedding hampers industrial growth

Despite better crops this year, the industrial growth did not recover from its low. We believe substantial power & gas load shedding and recession in the West has impaired the industrial production in the country. Despite an increase in cotton production, cotton yarn production fell to 2,225mn kgs from last year’s production of 2939mn kg. Similarly, cotton cloth production was down by 25% in the outgoing fiscal year. Other large-scale manufacturing constituents (mainly cements, fertilizer and chemicals) also recorded a decline in their respective productions.

Investments and savings data worst it the history

The flow of investments and savings determines the future growth and the interest rates of the country. Unfortunately, this year, data for both painted a bleak picture for future economic growth of Pakistan.

Investments as percentage of GDP fell to 12.5% led by huge slowdown in private investment in the country. Consecutively for the second year (never been witnessed in Pakistan history), private  investment came in single digit at 7.9% from last year’s level of 8.6%. Similarly, due to higher inflation,

room for savings also squeezed substantially as total saving rates dropped to 10.7%. Additionally, lower foreign savings also made it challenging for the SBP, as government borrowing from SBP substantially increased. Government is estimating a meagre 1.8% of GDP in shape of foreign savings and relying massively on domestic savings.



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