ISLAMABAD:

The government on Monday approved a tamed economic growth target of 4% for the new fiscal year after it could not fix chronic ills during the past four years holding back higher growth, and it projected imports crossing $70 billion amid growing external sector pressures.

The Annual Plan Coordination Committee (APCC), the body mandated to recommend the nation’s macroeconomic framework, also approved an 8.2% inflation target for fiscal year 2026-27. The macroeconomic framework the APCC approved reflected harsh ground realities of lack of space and enabling environment for economic growth and no meaningful increase in exports and remittances.

Headed by Planning Minister Ahsan Iqbal, the APCC approved the gross domestic product growth target of 4%, a rate not enough to reduce poverty and unemployment. The 4% growth target was even lower than this year’s 4.2% target the government could not achieve.

The government can achieve higher economic growth but it would be irresponsible to get growth by increasing imports and consumption, said Iqbal while speaking to the media.

However, his statement also reflects the government’s failure to increase investment, savings and exports during the past four years to sustain higher economic growth. Prime Minister Shehbaz Sharif has been in power since April 2022, except for eight months of caretaker tenure, and his government has already presented four consecutive budgets.

There has been consensus among policymakers, independent economists and foreign financial institutions that Pakistan cannot aim for a higher growth path without first generating enough domestic and external non-debt creating flows.

However, the finance ministry has been celebrating $750 billion private debt in exchange for Eurobonds and $250 million through Panda Bonds against guarantees given by the Asian Development Bank and the Asian Infrastructure Investment Bank.

“Borrowing loans by issuing bonds and then celebrating it is shameful,” said Iqbal while speaking during the APCC meeting.

While defending his statement in an interaction with the media, Iqbal said it was not a matter of pride for any country to meet its requirements by taking loans.

The government should enhance exports, as it was not an honourable way to run the country by floating bonds and seeking debt rollovers from friendly nations, said the planning minister in a jibe at his cabinet colleague.

Iqbal went on to say Pakistan cannot get rid of the IMF as long as the government keeps seeking rollovers from friendly countries. Pakistan annually seeks over $12 billion rollovers from Gulf nations and China. It recently paid back $3.5 billion to the United Arab Emirates by taking $3 billion more debt from Saudi Arabia.

The APCC approved a 3.8% growth target for the agriculture sector for next fiscal year and 4.5% for large-scale manufacturing. The industrial sector is targeted to grow by 4%, mainly due to a revival in LSM, alongside growth momentum in mining and quarrying, construction and energy, according to the government’s annual plan.

The services sector target is set at 4.2%, underpinned by better performance in wholesale and retail trade; transport, storage and communications; and financial services.

The Planning Commission said achieving these targets is contingent on effective macroeconomic management and stable external conditions.

After missing this year’s targets, the government has approved a savings target at 14.3% of GDP while the investment target is set at 15% of GDP.

The inflation target is set at 8.2%, higher than this year’s estimated average inflation rate of 7.1% despite supply shocks caused by the Middle East war.

At a projected low economic growth target of 4%, the government has estimated adding two million more jobs in FY 2026-27. It expects 1.1 million jobs will be created in the services sector, 500,000 in industry, and 400,000 jobs in the agriculture sector in FY 2026-27.

External sector

The external sector may face pressures as easing import controls and debt repayments are likely to widen the current account deficit, according to the APCC. It added that remittance inflows, export recovery and anticipated external financing are expected to help cushion these pressures and support external sustainability.

The current account deficit target for the next fiscal year is approved at 0.7% of GDP or $3.6 billion, far higher than this year’s estimated $1 billion deficit.

However, containing imports in the next fiscal year will be an uphill task for the government. The APCC approved new external targets, which are negligible compared with this year’s outcomes. The exports target is set at $32.8 billion – higher by only 8.4% over this year’s estimated exports of $30.3 billion.

Imports are projected to cross $70 billion next fiscal year – up by 5.6% over this year. As a result, the trade deficit for the next fiscal year is targeted at $37 billion, which will be largely filled on the back of remittances.

Remittances are projected to increase to $42.3 billion next year, higher by only 2.7% due to the uncertain situation in the Middle East.

Outgoing fiscal

Iqbal said this year’s 4.2% economic growth target was missed because of the impact of the Middle East war. The economy grew at 3.7% this year, reflecting broad-based improvements across agriculture, industry and services, said Iqbal.

On the external front, weakening exports and a recovery in import demand led to a widening of the trade deficit, which the government estimated at $36 billion for the outgoing fiscal year.

The APCC noted that estimated $41.2 billion remittance inflows in the outgoing fiscal year and growing services exports helped contain pressures on the external account, supporting the balance of payments.

Inflation in May rose to 11.7% on the back of an increase in petroleum prices, higher taxes and growing prices of wheat, vegetables and fruits. The surge in inflation was largely caused by the government’s decision to recover global oil prices as well as increasing taxes on fuel to offset the revenue shortfall.