GDP’s not a big fan of democracy it seems

The country’s economic health in FY12 like the previous four years continued to be marred with energy crisis, structural weakness and heightened security environment.
According to the Economic Survey, unveiled on Thursday by Federal Finance Minister Dr Abdul Hafeez Sheikh, many challenges like floods, rising fuel and commodity prices, global recessionary trends and weak inflows restricted country’s economic output.
The Economic Survey 2011-12 reported the GDP growth at 3.7 percent below the envisioned target of 4.2 percent.
“The compares unfavorably with last 10 years average GDP growth of 4.8 percent and last 65 years GDP growth of 5.0 percent,” said the analysts at Topline Research.
Furthermore, they said, last 5 years average GDP growth stood at 3.04 percent which is the lowest 5-yearly average economic growth in the history of Pakistan.
The survey has also adjusted previous two years (FY10-11) growth rate to 3.1 percent and 3.0 percent from 3.8 percent and 2.4 percent. The Per Capita Income in dollar terms rose by 9 percent to $1372 in FY12 versus revised $1258 in FY11.
Cumulatively, country’s 4-year (FY09-12) average GDP growth in PPP-led government stood at a mere 2.9 percent as against 6.6 percent recorded in preceding 5-years (FY04-08).
In the corresponding period (FY08-12), regional peers namely India, Sir Lanka and Bangladesh showed a growth of 7.8 percent, 6.8 percent and 6.1 percent, respectively, while developing market growth stood at 7.9 percent.
The impetus of growth once again resided with service sector in FY12, depicting a growth of 4.0 percent but it was still below the initial target of 5.0 percent.
“The performance was dominated by Finance and Insurance (6.5 percent), Social and Community Services (6.8 percent) and Wholesales and retail trade (3.6 percent),” said Nauman Khan. The Topline analyst said the agricultural sector grew by 3.1 percent against the target of 3.4 percent on account of 1.3 percent decline in minor crop output.
Major crops depicted growth of 3.2 percent thanks to post 2010 flood recovery in Punjab that more than compensated constrained output from Sindh due to floods. Cotton, Sugar-cane and rice showed robust growth of 18.6 percent 4.9 percent and 27.7 percent, while wheat production decline by 6.7 percent.
Manufacturing, remained victims of unfavorable investment climate and energy crisis, but managed to register a growth of 3.6 percent that is close to its initial target of 3.7 percent. LSM, as per the latest data, grew by 1.1 percent in 9MFY12 as against 1.0 percent last year.
The national savings as percentage of GDP decline to 10.7 percent from 13.2 percent a year ago, while investment to GDP dropped further to 12.5 percent, resulting increase resource gap to 1.8 percent. Both the trend are of concern, as declining investment implies restricted future growth and saving means higher reliance on external loans.
The survey puts 10MFY12 fiscal deficit at 5 percent which is already above full year revised target of 4.7 percent of GDP. We believe the actual deficit could balloon to 6.5 percent (excluding electricity arrear payments).
With electricity arrears it would reach 8.3 percent. Though the gov’t is expected to come close to its announced tax target, but higher expenditure due to increased subsidy were the culprits. Furthermore, we estimate 90 percent of escalating deficit would be financed through domestic sources that is excreting pressure on the domestic liquidity and keeping interest rate downward sticky.
“Due to record high fiscal deficit Pakistan’s public debt according to survey reached Rs12tn (58 percent of GDP) by March 2012 end,” Khan said.
The survey estimates inflation to remain close to targeted 11 percent, in line with our estimates and down from 13.7 percent last year. The decline in inflation was due to tight monetary policy despite sharp increase in international oil and domestic food prices.