PES 2023-24: Agriculture sector only saving grace in otherwise dismal year

Islamabad
Pakistan’s economy failed to meet most of its targets set in the previous budget due to challenging conditions, but the agriculture sector achieved unprecedented growth, Finance Minister Muhammad Aurangzeb announced on Tuesday while unveiling the Pakistan Economic Survey (PES) 2023-24.
The strong 6.25pc expansion in the agriculture sector — said by the report to be the highest in 19 years — drove Pakistan’s GDP growth by an expected 2.38 per cent in FY2024, recovering from a contraction of 0.21 per cent in the previous year.
The report said fiscal discipline was maintained, with a fiscal deficit of 3.7pc of GDP and a primary surplus of 1.5pc of GDP. Total revenues, meanwhile, grew by 41pc, driven by non-tax revenues and improved tax collection.
The State Bank of Pakistan, meanwhile, kept a tight monetary policy, with a 22pc policy rate, helping to ease inflation to 26pc from 28.2pc last year. The current account deficit narrowed to $0.5 billion, and gross foreign exchange reserves increased to $8.0 billion.
However, the PES noted a decline in the investment-to-GDP ratio, sluggish large-scale manufacturing, and high public debt.
Aurangzeb began by speaking about inflation. “It is important to see the level of inflation in 2022-23. [In this] year, the Pakistani rupee suffered nearly 29pc depreciation and the foreign reserves went to just two weeks of import cover.”
Aurangzeb noted that the current fiscal year had begun under Prime Minister Shehbaz Sharif’s leadership, before a brief caretaker administration, and was now back under PM Shehbaz’s elected government for the next five years.
Aurangzeb, who has been in his role for three to four months, said he had always believed that Pakistan would need to turn to the IMF programme.
He praised the prime minister’s “courageous step” in signing a nine-month Stand-by Agreement with the IMF, saying it had brought the country to a better place.
“Without it, God forbid, we wouldn’t be here discussing the targets. We would have been in a different situation, and we would have had the same discussion in a very different context.”
Aurangzeb acknowledged that the impact on large-scale manufacturing was inevitable, but highlighted agriculture as a “saviour” and a significant upside for future growth.
He also noted that revenue collection had grown by nearly 30pc, an “unprecedented” increase.
The finance minister credited the provinces for delivering on their surpluses, which had enabled the government to meet its commitment to the IMF.
He also highlighted the significant reduction in the current account deficit, from an estimated $6bn to around $200m.
Aurangzeb said in the three months of 2024, the country experienced a current account surplus. “I don’t have the final number, but if I look at the $3.2bn remittances for the month of May, I’m pretty sure there will be another month where we will show a surplus.
“So my belief that by the time we come into government, the current account deficit would be less than a billion dollars had turned into a reality.”
He praised successive administrations for the relative economic stability seen over the past few months. “Firstly, the caretaker administration took administrative measures, [launched a crackdown] against hundi hawala, and stopped smuggling, etc.
“After that, the State Bank of Pakistan [worked on] the structural part. Capital requirements for exchange companies were increased and the exchange companies involved in speculation were phased out.
“In a bid to regulate foreign exchange activities, we instructed banks without exchange companies to set up their own,” Aurangzeb said. “To me, that is a structural way of bringing the entire foreign exchange activity into a regulated environment.”
Aurangzeb expressed optimism that the move would prevent speculation on foreign exchange from returning to the country. “God willing, this will ensure that speculation does not come back to this country,” he said.
The minister recalled his experience in the private sector, where market predictions had suggested the dollar rate would soar to Rs300 or even Rs350.
“Because I was a part of the private sector at the time, we were following it and they were saying that it would be more than Rs300 and even Rs350,” Aurangzeb said.
The finance minister announced new initiatives to address leakages in the tax system, acknowledging that the previous track and trace system had failed. “We are now moving towards digitalisation to minimise human intervention,” he said.
Aurangzeb echoed his colleague’s — who was seated beside him — sentiment that “there are no sacred cows” and everyone must contribute to the economy.
He emphasised that while philanthropy could support schools, universities, and hospitals, the country’s functioning relied on taxes. “That’s one certain[ty]. That’s the basic principle,” he said.