Finance Minister Muhammad Aurangzeb unveiled the Economic Survey 2023-24 on Tuesday, underlining the national gross domestic product (GDP) growth of 2.38%, transcending the expectation of 2%.
The agricultural sector growth, the highest in 19 years, was the key driver of economic growth in FY24. This sector grew by 6.25% in FY24, driven by 16.82% growth in key crops like wheat, rice, and cotton, the document said.
With a high revenue collection of Rs9.8 trillion (41% higher year-on-year), the fiscal deficit was contained at 3.7% of GDP during 9MFY24 against last year’s same period’s deficit of 3.6%.
To achieve fiscal consolidation in the FY25 budget, the government will try to maintain prudent expenditure policies and focus on increasing revenue through policy reforms.
Moreover, in the medium term, the inflation rate for FY25 and FY26 is projected to normalise due to improvements in the agriculture sector and anticipated favourable global and domestic conditions.
We reached out to experts to express their views on the survey:
Bringing real estate into tax net
Alpha Beta Core CEO and economic analyst Khurram Schehzad, while speaking to Geo News, said that the finance minister’s presser gave hints as to what would happen in tomorrow’s budget and how much improvement should be expected in the fiscal year 2025.
Schehzad said, while referring to the government’s plans to revamp the Federal Bureau of Revenue (FBR) said: “After digitalisation, two outcomes are expected: one simplification of the tax system and second, no harassment of our taxpayers so that the collection is conducted with a centralised approach.”
“The measure came as those who pay taxes are harassed and those who don’t, are not even updated in the system. The minister also highlighted that everyone has to pay tax which indicates that the sectors they have been emphasising such as real estate, agriculture, wholesale, retail and trade. It shows that they will be brought into the tax net.”
The CEO also said that among the two key sectors highlighted by FinMin are technology and agriculture.
“There would be attempts to increase exports of these sectors as we can see agriculture and technology have driven the exports. It shows that not much taxes would be imposed on these sectors. Or maybe they don’t impose a tax on exports at all, giving an example of China as what our neighbour needs.”
“Beijing should be provided with agricultural producers and this is how we could export our technology,” the analyst said.
“He [finance minister] pointed out about building of reserves without debt, which means the remittances inflow were bought from the market by the State Bank so that our reserves could be built, rating agencies could review our position and our outlook become improved so that our chances with the IMF could get better with good conditions.”
Schehzad also added that all these indications point to a balanced budget.
The public sector is capable of doing wonders, the analyst said, while conceding with the opinion shared by Minister Aurangzeb during the press conference, adding that because the government has only one responsibility, which is to provide a friendly environment and a level playing field to all the actors no matter who the investor is.
Narrowed CAD, record remittances
Economist and analyst Sana Tawfik at Arif Habib Limited told Geo.tv that the real GDP has seen positive growth, mainly driven by the agricultural sector. If we compare the same with last year we were in the negative territory.
“So, this is a positive development on the economic growth front.”
We also observed that in the current account, the deficit has narrowed down by almost 95% in 10 months, she said, the reason is the decline in a trade deficit of almost 22%.
The economist also added: “We were also supported by the remittances which are currently $3.2 billion in May, a historic high number monthly. With this the key total amount year of 10 months, the main contributors were Saudi Arabia and UAE. With the current account deficit coming down, the national currency appreciated by 2.8%.”
She said the overall reserves also increased among which the State Bank’s reserves were $8.9 billion by June 5.
“If we talk about the outlook, the government is expecting that the export outlook is going to be promising due to improved global trade conditions and strengthened supply chains.”
She highlighted that there are expectations that imports would also be stimulated due to increasing domestic demand, adding that it is also anticipated that Pakistan will hopefully be successful in securing a long-term IMF loan.
The analyst was of the view: “On the growth front, the government is trying to stabilise the economy by prioritising exports and investment, to reach the goal of 5.25% by 2027.
Revenue collection was 9.8 trillion and the fiscal deficit was contained to 3.75% in nine months, however, elevated markup payments are still a concern, and the rate cut shows a promise in that regard.”
Highlighting the recent exorbitant rise in prices, Tawfik said: “Inflation has come down and has been on a downward trajectory due to a significant decline in different food prices. We have also seen that the interest rate has also been cut by 150 basis points.”
Providing an assessment to the pre-budget presser, she noted that the aim would be to achieve fiscal consolidation and the FY25 budget and the government will try to adopt a prudent expenditure policy and the focus would be to increase revenue through policy reforms.
Slowing inflation, easy monetary policy
Additionally, senior economist Khaqan Hassan Najeeb also emphasised the important highlights and indications from the Economic Survey of 2023-24.
In conversation with Geo.tv, he said the survey showed that the country has gone through a “slugflation (sluggish economic growth comblined with sticky inflation) year of FY24”. A growth of 2.3% after a negative growth of 0.2% in FY23 is the provisional figure for FY24.
The economist, while talking about the growth rate of different sectors, highlighted that this was backed by a higher growth with support of an increased growth of 6% in agriculture, but only 1% growth each for industry and the service sector.
Moreover, another important part was deemed high inflation, which is coming down certainly, as per the economist.
However, it follows a slow pace, according to the analyst, where 29% inflation was seen in 2023 and now about 24.5% average in 2024.
He also added that in this backdrop, with a high fiscal deficit and a monetary policy which has remained tightened, “we have passed FY24 and the current account is found to be certainly coming down as the economy has slowed”.
The analyst also shed light on a stable exchange rate due to many administrative measures, including the curbing of smuggling Afghan transit trade and actions on illicit exchange.
In conclusion, he revealed some expectations for the next year’s economic growth by stating that forecasts are looking a little healthier on the back of some industrial growth, with slowing inflation and a more easy monetary policy of 4.4% and 3.6% overall growth.
