The Annual Plan 2018-19, which is a part of the new budget, faces uncertainties with regard to its implementation in its original outline. Reportedly, some key features have been changed in relation to the draft of the Plan laid before the NEC. The original Plan projected a current account deficit in 2018-19 of $12.5 billion, equivalent to 3.8 percent of the GDP. But the deficit has now been revised upwards to $13.3 billion or 4 percent of the GDP. The GDP by expenditure estimates for 2018-19 have also been somewhat altered. Besides, there are differences in the key parameters of the Annual Plan and the corresponding numbers in the Budget documents for 2018-19. These relate to the national public development outlay and the expected external inflow of financing. The total outlay in the PSDP for the Federal and four Provincial Governments combined has been set at Rs 1,650 billion for 2018-19 in the Budget-in-Brief brought out by the MOF. But the Annual Plan presents a significantly larger size of Rs 2,043 billion for the national PSDP.
As for external financing, the estimate of the Annual Plan is $11.6 billion while the Federal Budget for 2018-19 is framed on the assumption of an inflow of $9.5 billion, at the exchange rate of Rs 117 per dollar. The Annual Plan is too optimistic in its growth projections. It expects the growth rate to exceed 6 percent for the first time after 200405 and reach 6.2 percent. The assumption is based on the revival of the agricultural sector; strong performance of industry; pick up in private sector; macroeconomic and political stability; improved security situation and enhanced supply of electricity.
The basic question which arises about the 2018-19 Annual Plan is: Are the upbeat expectations about growth justified? Contrary to the concerns of the IMF will the external imbalance decline and the economy stabilize? Regarding the feasible growth rate, it needs to be remembered that the increase in the GDP in 2017-18 has been overestimated. In the presence of a large water shortage in the Rabi season and reduction in the input of fertilizer of 4 percent it is hardly likely that the growth rate of the agriculture sector will approach 4 percent in 2017-18. Similarly, with a decline in electricity consumption of 2 percent by industry during first nine months of the year, the likelihood of a 6 percent growth in large-scale manufacturing is remote.
Therefore, the high growth rate of 6.2 percent is based on a big jump in relation to that achieved in 2017-18 of below 5 percent. Agriculture is projected to grow by b 3.8 percent in 2018-19. However, water shortages have already emerged in the on-going Kharif season and a bumper crop of over 14 million bales of cotton is beyond the realm of possibility. On the other hand, the fast growing industries are beginning to suffer a capacity constraint. Investment by the private sector in manufacturing has remained shy. In 2017-18 it is expected to actually fall by 2 percent. As such, continued double-digit growth rates in 2018-19 in industries like sugar, cigarettes, automobiles, cement, iron and steel are unlikely. Turning to the trade projections for 201819, exports are expected to continue showing buoyancy and maintain a high growth rate of over 12 percent.
The Plan also makes optimistic projections about inflows into the financial account of the balance of payments in 2018-19. This includes a 28 percent jump in foreign direct investment and portfolio investment of $4.7 billion, including up to $4 billion of Sukuk/Eurobonds. On top of all this, 'other' inflows in 2018-19 are likely to be as much as 66 percent over the bloated projection for 2017-18. The balance of payments projections in the Annual Plan are clearly unrealistic.