Several key production and service sectors performed lower than the government claims and expectations as the current fiscal year 2007 is coming close to June 30.

The low performance is spread over several areas -- from industrial output to foreign trade. But, there are exceptions like the farm sector and private investment that perform better than expected.

Several sectors fell short of government-set targets for FY07, as confirmed by the actual performance of the key official indicators for the first ten months -- July, 2006 to April, 2007.

National Economic council (NEC), the nation’s highest economic policymaking body, has some good news, too. Gross domestic product (GDP), it says, was up 7.02 percent. Its total size rose to $146.3 billion. The per capita income rose to $925 -- up from $833 in FY06. But there is widespread criticism over the fact that the growth was not equitable and middle and the lower classes did not benefit much. Rather they suffered from an all-time record 16.7 percent of food inflation.

The government’s pro-business policies and easy credit that is funding the economy, even at the cost of unrestrained inflation, were expected to boost the key industrial sector, but its performance was weak. Industrial output was targeted to rise 11.0 percent compared to the same period of FY06 but it has inched up just 6.8 percent. The latest estimates put output of the large scale manufacturing industry (LSM) rising merely 8.8 percent, compared to a 13.0 percent target. These targets were set in the national budget for FY07, announced in June, 2006.

The growth and output of a range of industries -- autos, engineering products, fertilizers, paper and paper board -- slowed down. The farm output, with a 5.0 percent growth, was the saving grace of the economy not only to meet the rising demand for food of growing population, but also to produce industrial raw materials for the domestic market and to expand exportable surpluses. Wheat production was 23.52 million tons, just a little more than the domestic demands. The sugarcane production at 54.7 million tones also exceeded the target. It was 44.7 millions tons in FY06.

But, raw cotton production that feeds the country’s biggest export and textile industry was down at 13 million bales, compared to a 13.8 million bales target.

This is not a happy sign for the textile industry whose exports are moving much slower than the target. The government and the State Bank of Pakistan (SBP) have asked this industry to stand on its feet, rather than continue demanding more tax breaks and subsidies to face competition in the global market place.

Rice the other key crop that brings in a good deal of export earnings also faced a shortfall as the total crop was 5.4 million tons, against the target of 5.7 million tons. The slowdown in exports is once more confirmed by the rather poor performance of the first 10 months. Export target slides to $17.20 billion, from the target of $19.20 billion -- down 13 percent for whole of FY07. Actual exports in the first 10 months were $14 billion, against the estimate of $15 billion for the first ten months, according to Trade Development Authority of Pakistan (TDAP). "The exports have increased, but the rate of growth was slow, ranging between four and five percent," TDAP says.

As industry and key sectors of the economy slowed down, import of industrial inputs and machinery marginally declined, bringing down overall imports to $27.10 billion -- compared to the estimated $27.40 billion.

The trade deficit widened to $9.90 billion -- against the estimated $7.60 billion. The deficit on account of the service sector also widened to $8.30 billion as against $7.7 billion. This is expected to widen further as repatriation of profits and dividends earned by foreign private investors rise. Foreign direct investment (FDI) inflows and growing home remittances sent by overseas Pakistani's working in the Persian Gulf, Saudi Arabia, U.S., and UK rose, and are expected to total up $5.5 billion by end of June. Home remittances in FY06 were 4.6 billion.

Larger FDI inflows and home remittances helped narrow the widening current account deficit. FDI inflows during 11 months to May of FY07 rose to $6 billion —- up from $3.3 billion in the same period of FY06. Commerce Minister Humayun Akhtar criticizes the government’s foreign trade policies. Akhtar said: "The government’s entire team of economic managers is responsible for the huge trade deficit and dwindling exports, adding that the government is focusing more on revenue collection, while not heeding to enhancing exports so as to minimize the burgeoning trade gap.”

Among other elements, the two key factors of the current state of foreign trade are Islamabad’s business with China and India. It has a rapidly widening trade gap with both of them. While exports from Pakistan to China, during the first ten months of FY07 were merely $379 million, Chinese exports to Indian exports to Pakistan in the same 10 months of FY06 were $419 million more than doubled this year.

Pakistan’s trade gap with India now is $716 million. It is projected to shortly widen to $1 billion on the back of sharply rising imports.

There is good news from the investment front. The private sector investment rose 16.2 percent -- up from the 14.3 percent target over FY06. On the other hand, the public sector investment declined to 5.20 percent, against the target of 5.6 percent of GDP. The government’s public sector development program came down from the target of 4.7 percent of GDP to 4.1 percent.

NEC has set higher targets for FY08 that starts July 1. The new growth targets are: GDP 7.2 percent, agriculture 4.8 percent, industry 9.0 percent, large scale manufacturing (LSM) 12.5 percent, and services 7.1 percent. The new cotton target is 14.14 million bales, wheat 24 million tons, sugarcane 55.90 million tons, rice 5.7 million tons, exports $18.9 billion, and imports $29.5 billion. (Source: Khaleej Times)