Staff Report
ISLAMABAD: Investment indicators have worsened further in the second year of Pakistan Tehreek-e-Insaf (PTI) government but savings ratio has improved on the back of improvement in the external account, showed official statistics. The investment-to-gross domestic product (GDP) ratio further deteriorated to 15.4% in the outgoing fiscal year, according to estimates of the National Accounts Committee (NAC). The government missed the investment-to-GDP target for the second successive year.
However, savings that stood at 10.8% of GDP in the last fiscal year increased to 13.9% – over one-percentage-point higher than the government’s target. The savings-to-GDP ratio has been worked out on the assumption that the current account deficit will remain at only 1.5% of GDP in the current fiscal year.
The savings-to-GDP ratio target of 12.8% was surpassed as the ratio stood at 13.9%. The ratio was better than the previous fiscal year due to the low current account deficit projected for the current fiscal year. The gap between total investments and savings is financed through foreign savings. The results are based on estimates of the NAC that has approved a provisional economic growth rate of negative 0.38% for the fiscal year 2019-20, ending on June 30.
Ashfaq Tola – a prominent chartered accountant – was the only person who accurately predicted 0.38% contraction. All the international financial institutions including the International Monetary Fund (IMF) and the World Bank had forecast up to 1.5% contraction for the outgoing fiscal year.
The PTI government has missed annual targets for economic growth and investment but has achieved the national savings target. Low investment and saving rates are the two structural issues that have constrained Pakistan’s economic growth. Public investment showed slight improvement but it was because of using budgetary figures of the Public Sector Development Programme (PSDP) instead of actually spending that was expected to remain significantly lower than the budgeted sum.
Private investment went down further in the second year of the PTI government, suggesting that private investors were not showing their trust in the government. Failure to achieve these crucial targets has limited the government’s ability to spend on deteriorating infrastructure and social sectors from its own resources.
This has increased the government’s reliance on external and domestic sources to meet its requirements, resulting in a mushroom growth in public debt in the past five years. The public debt-to-GDP ratio is projected to spike to 90% in the current fiscal year, according to the IMF.
The total size of the national economy is now estimated at $265 billion for this fiscal year, down from $279 billion a year ago. The size of the national economy in US dollar terms has shrunk 5%.
The investment-to-GDP ratio stood at 15.4% against the target of 15.8%, said sources. The ratio was worse than last year’s revised rate of 15.6%, they added.
