An­nual Plan

The Pak Banker - - FRONT PAGE -

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.

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