Pakistan’s economy missed all the targets set by the government for fiscal year 2016-17 (FY!&), barring inflation, while several economic indicators worsened during the year, according to the Annual Review of the Economy 2016-17 issued by the Institute for Policy Reforms (IPR) on Tuesday.
Fiscal consolidation gains of recent years also took a major retreat, the report said, placing the economy in a severe imbalance.
“Though there are signs of revival in FY 18 – as seen in several areas including first quarter FBR’s revenue growth of 21%, export revival continued growth in private credit and energy supply – the economy’s weak fundamentals suggest that these gains may be short lived,” it further said.
The report added that macroeconomic indicators are a major cause for concern with external vulnerability especially alarming considering the high current account deficit of $12.1b or 4 % of GDP.
“In June 2017, reserves were less than four months import bill. Since then, reserves have declined further while imports have grown.
“This trend has continued into FY18 with a widening deficit in July-August 2017-18. Imports that reduce foreign exchange reserves even when it builds the economy’s productive base cannot go on for more than the short-term.
“In 2016-17, Pakistan paid $8.15 billion in interest and principal or 53% more than in 2015-16,” the report said.
The report also highlights other macroeconomic weaknesses. “Overall fiscal deficit was 5.8% of GDP against government’s target of 3.8%. Both primary and revenue balance were negative. FBR revenue fell short of target.
“After an unprecedented 20% increase in FBR revenue in 2015-16, the government budgeted another 16% growth in revenue with no accompanying reforms. “After two years of a double-digit decline, exports fell by another 1.6% in 2016-17. They have revived since March 2017.”
The report also highlighted the lack of planning over meeting large balance of payment outflows in the medium term emanating from its ambitious investment plans which include massive foreign investment and borrowing.
“To be fair, the government believes that the plans will generate enough revenues to pay for the future foreign exchange outflows.”
The report cited a lack of forecasts about revenue generation as alarming and having the potential of turning into a crisis.