ISLAMABAD (June 05 2010): The economy grew by 4.1 percent in the outgoing year but to maintain the growth path would be the biggest challenge for the economic managers in the coming years because of energy crisis and ongoing war on terrorism.

Advisor to Prime Minister on Finance, Dr Abdul Hafeez Shaikh, who presided over the Economic Survey launch ceremony, said that Gross Domestic Product (GDP) would be 4.1 percent for 2009-10 with 2 percent contribution by agriculture sector, 4.9 percent by industrial, and 4.6 percent by the services sectors. The per capita income has been worked out at Rs 87,810 ($1051).

Hafeez said that 2008-09 was a very difficult year in the history of Pakistan with very low growth rate, but the difficult decision taken by the government last year had started yielding results. "The signs of economic recovery are visible now with growth rate picking up to 4.1 percent in the current fiscal from 1.2 percent a year ago".

The Advisor said that the next year would be more important with primary focus to get out of this difficult situation protecting and converting signs of economic recovery into a broad recovery. Giving details about the economic survey, Sakib Sherani, Principal Economic Advisor of the Ministry of Finance, said that good sign was that growth in remittances was increasing on monthly basis but the cost of energy and war on terror on the economy were very high.

"We are not sure the growth path of 4.1 percent would continue or not" he said, adding that growth was not evenly distributed in terms of sectors and regions, and unemployment had increased from 5.2 to 5.5 percent. He said that some of the biggest challenges posing threat to the growth rate are energy and law and order situation besides water situation.

Replying to a question, Hafeez said that overall economic performance was not satisfactory but there had been signs of possible recovery, and measures have been taken for its sustenance. These measures include austerity; monetary policy was co-ordinated with fiscal policy; and comfort level was ensured to the investor by going into International Monetary Fund (IMF) program. He said that the government has to control its expenditures to maintain the fiscal discipline.

Minister of State for Finance and Economic Affairs Hina Rabbani Khar acknowledged the fact that the committed pledges by donors at Tokyo Conference did not materialise and the government now expects FoDP pledges in the next two years. According to Economic Survey, the economy grew by a provisional 4.1 percent in the outgoing year, after a modest growth of 1.2 percent in 2008-09. However, the recovery is still fragile and the stabilisation needs to be consolidated so that the gains over the past two difficult years are not lost.

For the outgoing year, the agriculture sector grew an estimated 2 percent, against a target of 3.8 percent, and previous year's growth rate of 4 percent. While the crops sub-sector declined 0.4 percent over the previous year, livestock posted a healthy rise of 4.1 percent. Industrial output expanded by 4.9 percent, with Large Scale Manufacturing (LSM) posting a 4.4 percent rate of growth. The Services sector grew 4.6 percent, as compared to 1.6 percent in 2008-09.

The Commodity Producing Sectors are estimated to have expanded at a 3.6 percent pace. The unemployment rate increased to 5.5 percent (from 5.2 percent), largely due to the increase in urban unemployment to 7.1 percent (from 6.3 percent). At current market prices, Gross Fixed Capital Formation (GFCF) has been estimated to have declined 0.6 percent, after recording a 5.5 percent increase in 2008-09.

A substantial decline in foreign direct investment (FDI) inflows for the period also contributed to the decline in fixed investment in 2009-10. FDI accounted for a high share of gross fixed investment in Pakistan, with a share of close to 20 percent.

Overall CPI inflation accelerated to 13.3 percent year-on-year in April, with food inflation at 14.5 percent and non-food inflation at 12.2 percent. Core inflation, as measured by the rate of increase in prices of non-food, non-energy components of the CPI basket, registered an increase of 10.6 percent year-on-year. On a period-average basis, overall inflation was recorded at 11.5 percent for July to April. The State Bank of Pakistan expects the average CPI inflation for the current fiscal year to remain close to 12 percent.

Per capita income is estimated at Rs 87,810 ($1,051) in 2009-10, based on revised population numbers released by the Sub-Group II for the 10th 5-Year Peoples Plan 2010-15. Pakistan has achieved impressive initial gains in restoring macroeconomic stability in the aftermath of the balance of payments crisis of 2008. As a result of determined policy effort: For 2009/10, the fiscal deficit is aimed to be kept in check at 5.1 percent of GOP, despite the absorption of larger-than-budgeted security-related spending. The external current account deficit was contained to 5.6 percent of GDP ($9.3 billion) in 2008/09, from a high of 8.3 percent of GDP in 2007/08 (US $13.9 billion). The current account deficit is expected to decline to under 3 percent of GDP in the current year.

Foreign exchange reserves have been rebuilt to nearly $15 billion, from their low of under $6 billion in October 2008, though much of the accumulation is due to releases from the IMF. Inflation declined from 25 percent in October 2008, to a recent low of 8.9 percent in October 2009, though it has accelerated sharply of recent and is showing persistence. International credit rating agencies upgraded Pakistan from CCC+ to B- by S&P, while Moody's revised its outlook to Stable [August 2009]. However, challenges in consolidating these early gains have emerged, with inflation in the economy reappearing, and fiscal pressures increasing.

Copyright Business Recorder, 2010