Govt’s development plan lacks ambition

ISLAMABAD: The National Economic Council (NEC) on Wednesday approved a target of low economic growth and reduced development spending of 1.3 trillion rupees for the next fiscal year in a framework that may increase unemployment and could leave economic problems unresolved structural.

Led by Prime Minister Imran Khan, the NEC, a constitutional body mandated to approve the country's macroeconomic framework, approved only the 2.1% gross domestic product (GDP) growth rate for the fiscal year 2020-21.

Savings and investment targets for the upcoming fiscal year were also kept at an almost salient level, suggesting that the country's economy will not be out of the woods in the upcoming fiscal year. According to official documents, even the achievement of the 2.1% growth target depends on "controlling the Covid-19 pandemic".
The NEC approved 1.3 trillion rupees for combined development expenditures by the Center and provincial governments, a figure that has lost its sanctity due to large deviations between actual and approved expenditures by federal and provincial governments.

One reason for the large deviations is the failure of the Federal Revenue Board (FBR) to achieve its tax collection goals. Development allocations by the federal government also raise questions about its prudence, as, despite the lack of fiscal space, the PTI government has planned to start 296 new projects in the next fiscal year with an allocation of 26.6% of the meager Rs 650 billion Public Sector Development Program (PSDP).

In total, 994 schemes have been included in the PSDP, at a total cost of Rp 8.2 trillion. You need Rs5.7 billion to complete these schemes. Six hundred and ninety-eight ongoing projects have been included in the PSDP and Rs477 billion have been allocated for completion.

For the 296 new projects, Rs173 billion or 26.6% of the proposed budget is allocated, according to the presentation given to the NEC. Even to get Rs650 billion, Planning Minister Asad Umar had to push, as the finance ministry had initially proposed only Rs536 billion.

Macroeconomic framework

The NEC approved the GDP growth target of 2.1% along with the sectoral growth of agriculture (2.8%), industry (0.1%), and services (2.6%) for 2020-21. In reaching a compromise with the finance ministry, the planning ministry excluded the reasons for the negative economic growth of 0.4% in the outgoing fiscal year and threw all responsibility for Covid-19 in the NEC documents, according to the documents. officers.

Previously, the planning ministry had blamed the IMF program's tough economic contraction, high-interest rates, currency devaluation, and high inflows of foreign money for the first time in 68 years.

The average inflation rate for the next fiscal year is projected at 6.5%, which is less than the IMF forecast of 8%. The government's macroeconomic objectives largely coincided with IMF projections, which placed economic growth at 2% for the next fiscal year.

According to the NEC, the industrial sector is destined to grow 0.1% and the manufacturing sector is destined to contract 0.7% based on the LSM contraction of 2.5% in the next fiscal year. Construction and generation of electricity and gas distribution are set to grow by 1.4% and 3.5%, respectively.

The services sector is expected to grow 2.6%, against a 0.6% contraction in the fiscal outgoing. Growth in the agricultural sector of 2.8% in the coming fiscal year is projected based on growth in major crops and livestock.

National savings are projected to decline to 13.8% compared to 13.9% of GDP this year. The level is very low compared to regional pairs. The total investment is also projected at 15.5% of GDP against 15.4% this year.

Public investment, including the government, has been projected at 3.8% of GDP for the next fiscal year, which remains unchanged. Low investment and low savings targets would mean that the economic growth rate of even 2.1% is ambitious.

The planning ministry has projected that the unemployment rate would rise to 9.6% in the next fiscal year, indicating that Prime Minister Imran Khan failed to deliver on his promise to provide 10 million jobs.

National development outlay

The NEC approved a national development budget of Rs1.32 trillion for 2020-21, including more than Rs222 billion in loans from foreign lenders. The allocation is Rs350 billion or one-fifth less than Rs1,674 billion of original allocations for the outgoing fiscal year.

The NEC approved Rs650 billion