EUR 21.44 For Business Accounts Only

Pakistan Economic Review FY19

• Pakistan’s Ministry of Finance published the Annual Pakistan Economic Survey for FY19 today. As per the Economic Survey, Pakistan’s GDP grew by 3.3% in fiscal year ending Jun 2019 (FY19), lowest in 9 years, compared to 5.5% in FY18 (revised) and last 6-year average GDP growth of 4.5%.
• Topline was amongst the first one to downgrade GDP growth. Please refer to our report title ‘Pakistan Market Outlook 2019: Weak Macros to Limit Market Upside’ dated Dec 17, 2018 in which we mentioned GDP to grow at 3% for FY19.
• Overall economic growth slowed down amidst monetary and fiscal tightening by Govt. to curb inflation and unnecessary imports which eventually led to contraction in aggregate demand/lower GDP. 
• In terms of regional comparison (South Asian players), Pakistan fell behind regional players having average GDP growth rates of 5-6%, according to Economic Survey.
• Similarly, Pakistan per capita income dropped by 9% to US$1,497 in FY19 (up by 11% in Rs. terms) due to sharp devaluation of 19% in PKR vs. US$.
• Manufacturing, services and agricultural sectors fell short of Govt.’s own targets & also from last year and grew at 1.4%, 4.7% and 0.8% respectively (vs. target of +7.6%, 6.5%, and 3.8% respectively).
• Industrial growth (60% of GDP) remained lower than expectations, where manufacturing sector showed flattish growth vs. target of 7.8% due to decline in Large Scale Manufacturing (LSM) and construction sector by 2% and 8% YoY respectively. To note, LSM growth is negative in FY19 after a decade.
• Major sectors that witnessed decline in LSM are Steel, Pharma, Automobile and Petroleum Products by 11.0%, 8.4%, 7.6%, and 6.0% respectively. Similarly, mining sector also witnessed decline of 2% against targeted growth of 3.6%.
• Common factor that affected aforementioned four sectors is currency devaluation which led to increase in prices of these products and correspondingly lower demand.
• Agriculture sector (19% of GDP) showed marginal growth of 0.8% vs. targeted growth of 3.8% and previous years growth of 3.9%. Cotton ginning during the year (FY19) fell by 13% (vs. target of +9% YoY) and other important crop were down 6.5% (vs. target of +3.0%).
• We believe, lower agri growth is on back of water shortage, mainly in Sindh and poor crop yield due to subdued fertilizer offtake, especially DAP due to its rising prices.
• Services sector also fell short of expectations and grew at 4.7% vs. targeted 6.5% which is in line with our estimates. Last year services grew by 6.2%. Wholesale & retail trade, transport & communication, and finance & insurance posted below targeted growth of 3.1%, 3.3%, and 5.1% respectively.
• Restricted growth in services as a whole is attributed to currency deval which made transportation activities more expensive. Further hike in interest rates also kept trade and finance & insurance growth in check.