For the last two years, Pakistan’s “exports have been in free fall”. This is stated in a review of the economy for the first quarter 2016-17 issued on Friday by the Institute for Policy Reforms.
Exports declined in a broad range of sectors. The report calls for a proactive and concerted efforts to arrest the trend. This is critical to improve long term fundamentals of the economy and to reduce Pakistan’s external vulnerability. The report further stated that higher imports to improve power supply and for servicing of external debt have increased the economy’s forex needs.
Exports declined 8pc in 2014-15, a further 12.5pc in 2015-16, and again by 9pc in the quarter under review. During the quarter, imports grew by 10pc and the fiscal deficit expanded by 29 pc. In a troubling development, the report fears that after years of growth, overseas remittance may have begun to decline. It is yet early to confirm this.
Agriculture production has improved after last year’s dismal performance. Production of cotton grew by 18pc. It fell by 30pc last year. Other major crops have recovered. However, against the target growth rate of 5.9pc for 2016-17, year-on-year LSM grew by 2.3pc for the first quarter. Production declined in a number of major industries including textiles. During the quarter, the amount of private credit decreased compared to last year.
First quarter results show worsening of both fiscal and current account deficits. Fiscal deficit was 1.3pc of GDP for the quarter against a target of 3.8pc for the year. Current account deficit was 1.1pc, while the year’s target is 1.5pc of GDP.
FBR tax collection and federal government revenue grew by 4pc and 3pc respectively. This is on top of the unprecedented increase of 20pc during 2016-17. On the other hand, expenditures have remained within proportionate budget. In fact, development spending is lower than the first quarter last year.
The report states that quick fixes will not help with the growing twin deficits and signs of medium term external vulnerability. They require structural reforms through major policy changes. Without much needed reforms, the economy will continue to perform within a band of low to moderate growth. Public debt will continue to rise as revenues stay well behind needs. Export growth too will remain uncertain.