Year 2016 ends posing new challenges


The consumption has pushed the Pakistan’s growth up in fiscal 2016, however, the investment remained low whereas exports continued witnessing a free fall with soft global demand, the State Bank data revealed.

The data showed that Pakistan exacerbated the effects for long-term decline in competitiveness. However, on the other hand, the government could not show its efforts for structural reform agenda delivery in fiscal 2016 and much remained to be done, considering that the government wanted to maintain a sustained growth after achieving macroeconomic stability.

The data showed that the investment in health delivery, education and nutrition remained a great challenge for the government throughout the year despite Pakistan’s staggering fall in poverty over the last 14 years, has not been accompanied by a similar improvement in human wellbeing of the country.

The exports continued to shrink during the year, registering a decline of 8.8 per cent as compared to 3.9 per cent fall in fiscal 2015. Imports also contracted by 2.3 per cent primarily following the lower international oil and commodity prices. This resulted in widening trade deficit as a percentage of GDP from 6.3 per cent as compared to fiscal 2015 to 6.5 per cent in 2016.

Additionally, the higher repatriation of profits led to an increase in primary income deficit, which resulted in an overall current account deficit of $3.3 billion – about $0.6 billion higher than fiscal 2015.

The experts attributed Pakistan’s exports declined as weak global demand exacerbated the effects long-term decline in export competitiveness. Food and textiles are key contributors to Pakistan’s exports and continue to suffer from a decline in international prices and demand. Giving an example, the experts remarked that although Pakistan exported more rice in fiscal 2016 than in FY15, the value of rice exports fell due to a decline in international prices. The textiles sector, which accounted for 60 per cent of total

The exports, during fiscal 2016, saw a contraction of 5.6 per cent compared to fiscal 2015. “This decline was broad-based and affected both high and low-value textile exports”, the experts pointed out.

The only exceptions were knitwear and cotton carded, both of which grew due to higher global prices in these sub-categories. Although ‘Brexit’ has not yet affected exports, the EU accounts for 23.4 per cent of Pakistan’s exports and the UK 7.4 per cent, suggesting that potential future impacts could be significant.

Continuation of a long-term decline in Pakistan’s share of global trade witnessed in outgoing year, which has been driven by poor trade facilitation, infrastructure gaps, inefficient logistics and a poor investment climate. Pakistan has also lagged behind its competitors in trade openness, reducing its prospects of regaining momentum in export growth.

Accelerating progress in human development, including nutrition, remains a key challenge for sustained economic gains in Pakistan where public spending on education and health was one of the lowest in South Asia and allocations to nutrition were modest. Historically, nutrition — as well as early childhood education and development — have received little attention in Pakistan. The attention nutrition approach has been lacking cohesive planning and mainly funded by international donors and implemented by NGOs.

The year 2016 ended with the positive note for the government as it continued in making progress on fiscal consolidation, reducing the consolidated fiscal deficit from 5.3 per cent of GDP as compare to fiscal 2015 to 4.6 per cent in fiscal 2016. Revenue growth was underpinning the falling deficit, driven in outgoing year by a 20 per cent increase in the Federal Board of Revenue’s (FBR) collection. Some of this collection may, however, affect the progress of other reform efforts; the experts said adding that was in contrast with efforts to reduce Pakistan’s trade tariffs,

Increase in customs duties collection of 32.7 per cent has also been registered in 2016 as a result of FBR’s attempts to meet revenue targets. Similarly, the recently-introduced withholding tax on financial deposits may have driven customers to circumvent formal banking channels, as the currency deposit ratio has increased from 0.29 to 0.35 in just one year. A series of new tax measures in the fiscal 2017 budget will broaden the tax base and are expected to contribute to another significant increase in FBR revenues.

On the expenditure side, the development budget has grown faster than the recurrent budget. In the fiscal 2017 budget, an expected reduction in state-owned enterprise subsidies and interest payments has created space for an increase in infrastructure spending, including on CPEC projects.