Sav­ings & in­vest­ment

The Pak Banker - - FRONT PAGE -

Ac­cord­ing to a re­search re­port, two key struc­tural prob­lems of Pak­istan's econ­omy - low in­vest­ment and sav­ing rates - re­mained un­ad­dressed dur­ing the five-year PML-N ten­ure, as the govern­ment again missed both these crit­i­cal tar­gets in the out­go­ing fis­cal year. The Na­tional Ac­counts Com­mit­tee has re­ported that by the end of fis­cal year 2017-18, pri­vate in­vest­ment has been pro­jected to fall to the low­est level in five years, de­spite the bo­nanza of the China-Pak­istan Eco­nomic Cor­ri­dor. In ad­di­tion, the na­tional sav­ings to Gross Do­mes­tic Prod­uct (GDP) ra­tio also fell to a ten-year low. Sav­ings slipped even be­low last year's level and stood at 11.4% of GDP - far be­low the target of 14.6%. In the last fis­cal year, sav­ings were recorded at 12% of GDP. It was the low­est ra­tio in last ten years. In fis­cal year 2007-08, the sav­ings-to-GDP ra­tio had clocked in at 11%. Un­der the five-year plan, the PML-N govern­ment had tar­geted to in­crease sav­ings to 21.3% of GDP.

Fail­ure to achieve these two cru­cial tar­gets has lim­ited the govern­ment's abil­ity to spend on de­te­ri­o­rat­ing in­fra­struc­ture and so­cial sec­tors from its own re­sources. This has in­evitably in­creased govern­ment's re­liance on ex­ter­nal and do­mes­tic sources to meet its re­quire­ments, re­sult­ing in mush­room growth in pub­lic debt in past five years. The in­vest­ment-to-GDP ra­tio stood at just 16.4% against a target of 17.2%. The ra­tio was slightly bet­ter than last-year's re­vised rate of 16.1%. It may be added here that un­der the Five-Year Plan 2013-18, the PML-N govern­ment set a target to en­hance the in­vest­ment-to-GDP ra­tio to 22.8% by 2017-18.

The govern­ment's in­abil­ity to in­crease in­vest­ment as a per­cent­age of the to­tal size of the na­tional econ­omy re­mains its big­gest fail­ure on the eco­nomic front, sug­gest­ing that struc­tural ob­sta­cles re­main un­ad­dressed de­spite un­der­tak­ing so-called re­forms un­der the $6.2 billion In­ter­na­tional Mon­e­tary Fund pro­gramme. Due to low sav­ings and in­vest­ment ra­tios, Pak­istan's cur­rent ac­count deficit is now pro­jected to widen to 5% of GDP - higher than last year's level of 4.1%. The new pro­jected cur­rent ac­count deficit is al­most dou­ble the of­fi­cial target of 2.6% of GDP.

To en­hance the econ­omy's re­pay­ment ca­pac­ity, there must be sus­tained eco­nomic growth and an in­crease in ex­ports, which is only pos­si­ble if there are higher sav­ings and in­vest­ments, in­clud­ing pub­lic in­vest­ment. Need­less to say, pos­i­tive ef­fects of Chi­nese pub­lic and pri­vate in­vest­ment on Pak­istan's econ­omy will re­quire struc­tural re­forms and im­proved gov­er­nance. Pak­istan has one of the low­est in­vest­ment and sav­ing rates in the re­gion and the world, ob­struct­ing progress to­wards sus­tain­able in­clu­sive eco­nomic growth path. Pak­istan pro­vi­sion­ally achieved 5.8% growth rate in fis­cal year 2017-18, which was the high­est level in the last 12 years. But it was largely con­sump­tion­led eco­nomic growth and slightly be­low the of­fi­cial target of 6%.

Fixed in­vest­ment re­mained at only 14.8% of GDP in fis­cal year 2017-18 against the target of 15.6%. It was up 0.3% from last-year's level. Pub­lic in­vest­ment in­creased to 5% of GDP, which was bet­ter than the 4.5% target. Pub­lic in­vest­ment in­creased ahead of next gen­eral elec­tions. Just 10% of bank credit went to the fixed in­vest­ment dur­ing first half of the cur­rent fis­cal year. How­ever, the wor­ri­some area is the pri­vate in­vest­ment.

The target of pri­vate in­vest­ment was also missed by a wide mar­gin, which stood at 9.8% of GDP as against the target of 11.2%. The re­sults are worse than last year when pri­vate in­vest­ment was es­ti­mated at 10%. In dol­lar terms the per-capita in­come has grown by only 0.6% to $1,638.2 - up $9 per per­son in the out­go­ing fis­cal year 201617. Pak­istan con­tin­ues to be in the league of low mid­dle-in­come coun­tries. It needs to en­hance the per-capita in­come to over $4,000 to be la­beled a mid­dle-in­come coun­try.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.