Pakistani economy is heading for lower growth rate in 2019. The GDP growth might fall under 4% during current financial year ending in June 2019. There are no high hopes that the economy will rebound in the next financial year. The PTI-led government is largely relying upon traditional policies of focusing on raising tax rates and utility prices instead of tackling underlying structural problems.
The international financial institutions like of IMF, World Bank, Asian Development Bank and international ratings agenciesare predicting slower GDP growth rate in 2019. The IMF and World Bank projected the growth rate around 5% at the beginning of 2018.
According to the World Bank’s Global Economic Prospects Report for 2018, published in March 2018, The Growth in the Pakistani economy is expected to slow to 5pc in 2018-19 from expected growth of 5.8pc in the outgoing fiscal year, reflecting tighter policies to improve macroeconomic stability. Both IMF and World Bank expected to further lower the GDP growth rate for 2019 in their next report.
The Economist Intelligence Unit (EIU) has projected Pakistan’s economy to expand by an annual average of 2.9% in 2018/19‑2022/23, compared with 5.4% previously. The advisory issued by the EIU comes amidst Pakistan’s ongoing negotiations with the International Monetary Fund (IMF).EIU stated political considerations, especially of the US may complicate the negotiations, but it expected Pakistan to clinch a $7 billion IMF bailout package by early-2019.
Many independent Pakistani economists and economic experts are also predicting the growth rate around 3% during the current and next financial year. The PTI government has not been able to introduce wide ranging reforms and measures to boost the economic growth.
The government of Pakistan has listed fiscal squeeze and low outputs in agriculture and manufacturing sectors among the reasons for slowing down of the economy. In the last fiscal year, the economy grew at a pace of 5.8 per cent – the highest in 13 years.
In the latest classic example to understand the government’s economic and fiscal policies, in a bid to avoid passing on full benefits of decreased oil prices in international market to the consumers, the PTI government jacked up general sales tax (GST) rate at standard level of 17 percent with effect from today (Tuesday). Earlier, the government had kept GST rate on lower side, but now it was brought at standard level of 17 percent for both petrol and diesel from January 1, 2019. Earlier, the GST on petrol stood at 8 percent and diesel at 13 percent, but now it has been jacked up to standard rate of 17 percent with effect from today.
In the wake of increasing budget deficit because of inability of the government to raise revenue and curtail expenditure simultaneously, the government is left with no other option but to generate taxes through increasing tax rates in upcoming mini budget which the government plans to present before the Parliament around mid of this month. The prescription of the PTI-led regime will be the same as tax rates will be hiked as was done by the PML-N government in last five years.
In the name of stabilization of economy, this outgoing year 2018 witnessed 30 percent devaluation of rupee against dollar, hike in discount rate by 425 basis points, rising twin deficits to historic levels in absolute figures, falling foreign direct investment and rising inflation.
The government needs to focus on the agriculture and manufacturing growth to boost the economy. Both sectors are experiencing lower growth in the current fiscal year. Without solving the problems faced by the key sectors of economy, it will be difficult to increase the growth rate. It will be hard for the PTI government to achieve its economic targets without accelerating the GDP growth.
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17 November, 2019