Unemployment surges, per capita income dwindles
05 June, 2010
ISLAMABAD: Dr Hafeez A Sheikh, Adviser to the Prime Minister on Finance on Friday admitted that GDP growth in two years has not been so good with unemployment rate increasing to 5.5 per cent from 5.2 per cent, per capita income of $1051, down by $20 from $1071 in 2008-09.
“The per capita income has been worked out keeping in view the 173.5 million population of the country.” However, in the outgoing fiscal year the economy showed some recovery with provisional estimated GDP growth of 4.1 per cent after modest growth of 1.2 per cent in 2008-09.
Dr Sheikh stated this while launching the Economic Survey 2009-010, authored by Principle Economic Adviser Sakib Sherani, saying the recovery is still fragile and the tough challenge for the government is to protect the growth recovery keeping in view the risks that include a further deterioration of internal security, continuation of energy shortages and recession in global state of economy which may hurt Pakistani exports as well as remittances.
The adviser said that for the outgoing year, the agriculture sector grew by an estimated two per cent against a target of 3.8 per cent and previous year’s growth rate of four per cent. While crops sub-sector declined 0.4 per cent over the previous year, livestock posted a healthy rise of 4.1 per cent. Industrial output expanded by 4.9 per cent, with Large Scale Manufacturing (LSM) posting a 4.4 per cent rate of growth. The services sector grew 4.6 per cent, as compared to 1.6 per cent in 2008-09.
Sherani — the architect of the Economic Survey — said the economy suffered a lot because of the energy, water crises and internal security situation. “The energy crisis has adversely impacted the GDP growth by two to 2.5 per cent meaning bythat the growth could have performed well up to 6.6 per cent if there existed no energy crisis.”
Mentioning the impact of the war on terror on Pakistan, Sherani disclosed that Pakistan sustained a huge losses of $43 billion during the period from 2001 to 2010. He said that the war in 2009 got intensified owing to which the country’s economy braved a loss of $3.052 billion.
The Economic Survey says Pakistan public debt increased to a whopping Rs8.160 trillion by March-end, 2010 which is equal to 56 per cent of the GDP and 379 per cent of the total budgeted revenue for the year. However, the survey has failed to let the people know about the poverty level saying the government will disclose the figure after three to four months.
Foreign direct investment has declined by 45 per cent. The decline in FDI inflows was in line with the steep drop in global flows of foreign direct investment that fell 32 per cent in 2009 according to estimates of the International Institute of Finance (IIF). For the period July to April 2009-10, FDI totalled US$1.8 billion as compared to US$3.2 billion in the same period of FY 2009. This represents a decline of 45 percent.
A large part of the decline in FDI for the period was recorded under telecommunications (a net decline of US$607 million), and Financial Services (a fall of US$548 million).
Combined, the decline in these two sectors, which related to a few “lumpy” transactions amounted to 81 per cent of the overall reduction in FDI in 2009-10. Investment levels in some sectors remained healthy, including in oil and gas exploration (FDI of US$605 million), communications (US$222 million), transport (US$104 million), construction (US$86 million), and paper and pulp (US$81 million). Despite a steep decline, inflow of FDI into financial services was recorded at US$133 million for the period.
A worrying development was the large net disinvestment recorded under the IT services sector for the year (amounting to US$95 million). Overall, out of the major industry categories, 12 recorded higher FDI for the period, while 24 industries witnessed a net reduction in FDI inflow.
The survey unveils that the external current account deficit is expected to contract to around 2.8 per cent of GDP in the outgoing year in the wake of the large improvement is mainly on the back of a steep decline in imports for much of the year, improving exports as world demand is gradually restored, and a continued increase in worker remittances, which are expected to reach 4.8 per cent of GDP for the full fiscal year.
The survey also mentioned about the allocation of financial resources between the Centre and provinces under 7th NFC Award, based on multiple criteria. Under the new mechanism the Centre will allow an increase in the share of provinces with 56 percent for the first year and 57.5 per cent for the remaining years.
The share of the federal government in the net proceeds of the divisible pool shall be 44 per cent during the financial year 2010-11 and 42.5 per cent from the financial year 2011-12 onwards. From the divisible pool provinces will get in next fiscal year about Rs569.8 billion.
The survey also claims to get the fiscal deficit target of 5.1 per cent of the outgoing fiscal. However, during the answer-question session, when asked as to why the government has massively increased the salaries of Army personnel much before the budget announcement and no required heed is being paid to the government employees, Dr Hafeez A Sheikh said the government would definitely provide relief to government employees. However, it is not right to divide the nation putting such questions, he said. “We should keep the fact in our mind that the Pakistan Armed Forces are at war with militants to ensure the safety of the common people of the country.”
When asked as to why the government has reduced the allocation in the education sector, the adviser said since education is the provincial subject and the major diversion of financial resources to provinces is being taking place from next fiscal year. Now the responsibility to enhance allocation for education lies with the provincial governments. “As far as the higher education sector is concerned no reduction in allocation has taken place.”
When asked as to why the committee constituted by the adviser to the Prime Minister Dr Hafeez A Sheikh to look into the ‘manipulated GDP growth, furnished by the National Accounts Committee has not met before the release of the economic survey, Dr Nadeemul Haq, Deputy Chairman, said that the committee has not met, but we have circulated among the committee members the paper with regard to the GDP growth. However, he said that the committee has not yet taken the final decision on the GDP growth.
This is really unfortunate that Sakib Sherani has included in the economic survey the provisional figure of GDP growth of 4.1 percent which has not been endorsed by the committee constituted by Dr Sheikh in EAC meeting.