PES 2023-24: Agriculture sector only saving grace in otherwise dismal year – Business

Pakistan missed most economic targets set during the previous budget owing to tough conditions, but there was one upside: agriculture, which grew at an unprecedented rate, Finance Minister Muhammad Aurangzeb said as he unveiled the Pakistan Economic Survey 2023-24.

The Pakistan Economic Survey is an annual report that charts the country’s economic progress for the outgoing financial year, ie, from July 1, 2023 to June 30, 2024, and is one of the stages of the federal budget process that the public is exposed to.

The pre-budget report provides an overview of Pakistan’s economy and highlights its performance in various sectors, typically covering key indicators such as GDP growth, inflation, trade, and investment, as well as sector-specific performance in areas like agriculture, industry, and services.

Finance Minister Aurangzeb began with speaking about inflation. “It is important to see the level of inflation in 2022-23. [In this] year, the Pakistani rupee suffered nearly 29pc depreciation and the foreign reserves went to just two weeks of import cover.”

Finance Minister Muhammad Aurangzeb noted that the current fiscal year had begun under Prime Minister Shehbaz Sharif’s leadership, before a brief caretaker administration, and was now back under PM Shehbaz’s elected government for the next five years.

Aurangzeb, who has been in his role for three to four months, said he had always believed that Pakistan would need to turn to the IMF programme.

“There is no plan B, and if there was a plan B, the IMF wouldn’t be called a ‘lender of the last resort’,” he said.

He praised the prime minister’s “courageous step” in signing a nine-month Stand-by agreement with the IMF, saying it had brought the country to a better place.

“Without it, God forbid, we wouldn’t be here discussing the targets. We would have been in a different situation, and we would have had the same discussion in a very different context.”

Aurangzeb acknowledged that the impact on large-scale manufacturing was inevitable, but highlighted agriculture as a “saviour” and a significant upside for future growth.

He also noted that revenue collection had grown by nearly 30 per cent, an “unprecedented” increase.

The minister credited the provinces for delivering on their surpluses, which had enabled the government to meet its commitment to the IMF.

He also highlighted the significant reduction in the current account deficit, from an estimated $6bn to around $200m.

Aurangzeb said in the three months of 2024, the country experienced a current account surplus. “I don’t have the final number, but if I look at the $3.2bn remittances for the month of May, I’m pretty sure there will be another month where we will show a surplus.

“So my belief that by the time we come into government, the current account deficit would be less than a billion dollars had turned into a reality.”

He went on to praise successivee administrations for the relative economic stability seen over the past few months. “Firstly, the caretaker administration took administrative measures, [launched a crackdown] against hundi hawala, and stopped smuggling, etc.

“After that, the State Bank of Pakistan [worked on] the structural part. Capital requirements for exchange companies were increased, the exchange companies involved in speculation were phased out.”

“In a bid to regulate foreign exchange activities, we instructed banks without exchange companies to set up their own,” Aurangzeb said. “To me, that is a structural way of bringing the entire foreign exchange activity into a regulated environment.”

Aurangzeb expressed optimism that this move would prevent speculation on foreign exchange from returning to the country. “God willing, this will ensure that speculation does not come back to this country,” he said.

The minister recalled his experience in the private sector, where market predictions had suggested the dollar rate would soar to Rs300 or even Rs350.

“Because I was a part of the private sector at the time, we were following it and they were saying that it would be more than Rs300 and even Rs350,” Aurangzeb said.

The finance minister announced new initiatives to address leakages in the tax system, acknowledging that the previous track and trace system had failed. “We are now moving towards digitalisation to minimise human intervention,” he said.

Aurangzeb echoed his colleague’s — who was seated beside him — sentiment that “there are no sacred cows” and everyone must contribute to the economy.

He emphasised that while philanthropy can support schools, universities, and hospitals, the country’s functioning relies on taxes. “That’s one certain[ty]. That’s the basic principle,” he said.

The minister highlighted the significant issue of electricity theft, estimated at Rs500bn.

He also stressed the importance of not only the quantity of foreign exchange reserves but also their quality, noting that the current reserves were not funded by “dead stock”.

Aurangzeb expressed optimism about the upcoming fiscal year, saying it was a “big thing” that they would start on a positive note.

Overall and sector wise growth rates

Trade deficit

FBR tax collection

Fiscal deficit

PSDP

Next stage

Pakistan is looking to secure a “longer and larger” bailout with the IMF, and it is likely that the lender’s conditions will factor heavily into the forthcoming budget.

Significant economic challenges

According to the Planning Commission’s estimations made in the Annual Plan Coordination Committee, the economy faced significant challenges at the beginning of 2023-24, primarily due to the lagged impacts of economic disruptions of the previous year.

However, the economy made a moderate recovery later in the year and grew by 2.4 per cent.

During the year 2023-24, the primary driver of growth was the agriculture sector, growing by 6.3pc, owing to bumper outputs of wheat, cotton and rice.

The industrial sector grew by 1.2pc mainly due to a slowdown in large-scale manufacturing activities. However, there was growth in mining and quarrying, small-scale manufacturing, and construction.

The services sector also registered 1.2pc growth as wholesale and retail trade experienced a mere 0.3pc growth. The transport, storage and communications sector also recorded a low growth of 1.2pc due to subdued demand.

Total revenue collection grew by 41pc during July-March 2023-24, outpacing the 36.6pc growth of total expenditure. Both tax and non-tax revenues grew by 29.3pc and 89.8pc, respectively. Markup expenditure constituted 40pc of the total expenditure.

During July-April 2023-24, average inflation was recorded at 26pc as compared to 28.2pc in the same period of last year.

A continuously declining inflationary trend has been observed since January 2024.

More to follow