Responding to economic challenges
WHILE it is hard to take an issue with the government claims that over the last three years the economy has been revived and all the economic indicators reflect positive trends and that despite failing to achieve the targets set for financial year 2015-16, the GDP growth stood at 4.71% which is the highest rate of growth in the last years, the negative growth in agriculture sector is quite worrisome. Pakistan is an agricultural country and agriculture is the mainstay of our economy. Equally bothersome is decline in the exports as compared with the previous year.
As revealed in the economic survey, agriculture recorded negative growth of 0.19% as compared to 2.53 % last year. This development is attributable to the fact that growth of crops declined by 6.25% though the sub-components like Livestock, forestry and fishing posted positive growth of 3.63%, 8.84% and 3.25% respectively. The major contributing factor to the overall dismal performance of the agriculture sector according to the Finance Minister was 28% losses in the cotton crop that reduced the GDP growth by 0.5%. The factors that led to this situation included higher inventories, declining commodity prices and unfavourable weather conditions. Agriculture provides employment for 45% of the labour force, 70% of the population depends on it and it contribute 21% to the GDP. And above all it ensures food security for the country. That adequately explains the importance of agriculture for our economy.
In the backdrop of the foregoing developments, it is, however, encouraging to note that the government has come up with a befitting response in the budget for 2016-17 to fix the aberrations in the two vital sectors of the economy which have under-performed. Taking cognizance of the unfolding scenario in the agricultural sector, the government announced a package of Rs.341 billion for farmers in March 2015 that included direct cash support to the tune of Rs.40 billion, Rs.20 billion subsidy on urea, subsidy on import of urea to keep prices low and concessional tariff for agriculture tube wells. In the budget for 2016-17 further measures have been announced to boost the agriculture sector and help the farmer community. The prices of bag of urea have been reduced from Rs.1800 to Rs.1400. Similarly the prices of DAP per Kg have been brought down to Rs.2500 from Rs.2800. The subsidy on these two items will amount to Rs.46 billion which will be equally shared by the Federal and Provincial governments. Volume of agricultural credit has been increased from Rs.600 billion to Rs.700 billion. Mark-up on loans advanced to farmers by ZTBL, NBP and Bank of Punjab has been reduced by 2%. A reduction of Rs3 per unit has been announced for agricultural tube wells which will burden the national exchequer by Rs.27 billion. Import duty on import of machinery for daily, livestock and poultry sectors has been reduced from 5% to 2%. Sales tax of 7% on pesticides and its ingredients currently in vogue has been abolished.
Exports that stood at $20.5 billion in the financial year 2012-13, came down to $18.2 during 2015-16 registering a decline of 11%. The reason given by the Finance Minister was global decline in commodity prices. The argument given by the Finance Minister carries some weight. Due to globalization that has increased interdependence on and connectivity with each other as well as made the countries of the world part of the global economic and commercial system, any hiccup on the international level does affect almost all of them in varying degrees, depending on the strength of the economy and its ability to absorb the shock. The effect though is more pronounced for developing countries like Pakistan. Due to the decline in exports trade deficit of Pakistan, as per figures issued by the State Bank, increased to $20.05 billion as compared to $19.94 last year. Trade deficit is a very crucial economic indicator and growing trade deficit can negatively impact the overall economic situation. Increasing exports and reducing imports are the ideal remedy to address the debilitating impact of trade deficit. The preferred option, however, is to devise policies that ensure export-led growth.
The decision to continue the scheme of drawback on Local Taxes, reduction in mark-up rates on export refinance facility, establishment of Technology Up-gradation Fund and zero-rating of export oriented sectors such as textile, leather, sports goods, surgical goods and carpets, duty free import of machinery and finalization of all the pending cases of sales tax refunds are very imaginative and timely steps to revitalize and enhance the export potential of the country.
Managing the economy of a developing country like Pakistan, no doubt is a very arduous and convoluted responsibility due to a host of internal and external factors. But it must be admitted that the PML(N) government, particularly the Finance Minister has been handling his responsibility with utmost dedication, foresight, vision and sensitivity to the needs of stakeholders in different domains of the economy. The macroeconomic reforms introduced to reinvigorate the economy have indeed produced very encouraging results. — The writer is freelance columnist based in Islamabad.