Islamabad:
Pakistan’s investment index has sunk to a 50-year low, falling to just 13.1% of the economy’s size in the outgoing fiscal year, despite efforts by the Special Investment Facilitation Council (SIFC), according to figures approved by the National Accounts Committee (NAC).
This half-century low investment-to-Gross Domestic Product (GDP) ratio confirms concerns that the SIFC alone cannot significantly boost investment without improvements in the fundamentals of Pakistan’s economy and the achievement of political stability.
The official figures also revealed a discrepancy in the population figure used by the Pakistan Bureau of Statistics (PBS) in the National Accounts approved a day earlier. This discrepancy resulted in an overestimated per capita income of $1,674 per person for the outgoing fiscal year. According to the results of the 2023 population census, the country’s population was 241.5 million. However, PBS used an outdated population of 236 million.
According to National Accounts provisional estimates, investment and savings as a percentage of Pakistan’s economy remained below official targets for the current financial year. Such low savings and investment ratios are at the root of external sector crises.
Against the target of 15.1% of the investment to GDP ratio, it fell to 13.1% in the outgoing financial year. This is the lowest percentage in the last 50 years. The last time the investment to GDP ratio was this low was in 1973-74 when it was recorded at 13.2%.
The Pakistan Democratic Movement (PDM) government established the SIFC through an Act of Parliament, with the aim of boosting the country’s low investment and removing bottlenecks that hinder economic growth. The SIFC is a joint body run by both military and civilians. He has made many attempts in the last year. However, these efforts have not yet translated into concrete results.
Sources say that during the ongoing talks, the International Monetary Fund (IMF) has inquired about the investment expected by Pakistan in this financial year and next.
The SIFC has so far been able to address coordination issues between federal and provincial governments and remove procedural bottlenecks. However, these efforts did not lead to significant increases in either foreign or domestic investment.
The 13.1% investment to GDP ratio is significantly lower than regional peers. Last year this index was 14.1%.
Pakistan has been expecting an investment injection of up to $5 billion from Saudi Arabia, but so far, these assurances have not translated into concrete deals.
The ratio of fixed investment to GDP also fell to 11.4% from last year’s level of 12.4%. Private sector investment fell to 8.7% of GDP this fiscal year, which is also the lowest level in nearly 25 years.
The ratio of public sector investment to GDP fell to 2.8% – the lowest level in four years. Public investment has been hit by fiscal constraints, with the Finance Ministry not releasing the total budget of Rs 950 billion.
Frequent changes in tax policies and biases towards the manufacturing sector have reduced investment in manufacturing. The country’s productivity is declining and economic growth is largely driven by consumption, which accounted for about 88% of the increase in the size of the economy.
The failure to meet the critical investment target has limited the government’s ability to address deteriorating infrastructure and social sector issues using its own resources, leading to an increased reliance on loans for development projects.
The government’s failure to increase investment as a percentage of the national economy is a significant economic failure, indicating a lack of progress in addressing structural imbalances.
The savings-to-GDP ratio fell slightly from 13.1% to 13% in the current financial year and is also short of the official target.
GDP size
The estimated size of the national economy for the current fiscal year is $373.6 billion, up from $338.2 billion the previous year. The size of the economy grew by 10.5% in dollar terms in the outgoing financial year, thanks to a stable exchange rate. However, it is still lower than the $375.6 billion figure two years ago, which was reduced by subsequent devaluations.
In rupee terms, the size of the economy has reached Rs 106 trillion in 2023-24.
Per capita income, which was estimated at $1,551 last fiscal year, rose to $1,674 this year – an increase of $123 or 8% per person. However, the per capita income is calculated based on a population of 236 million.
According to the latest population census, Pakistan’s population was 241.5 million two years ago. At an average annual growth rate of 2.6%, it should have been 248 million by now. Per capita income will be overstated by about $90 due to the incorrect use of population numbers.
PBS chief statistician Dr Naeemuzafar did not respond to a question about the use of the old population figures.
Published in The Express Tribune, May 23rd2024.
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