The services sector of the country grew by 4.7 percent during the financial year 2018-19, representing a slowdown when compared to last year, State Bank of Pakistan (SBP) said in its latest report. According to SBP’s third quarterly report on the State of Pakistan’s Economy, the growth was also lower than the annual target of 6.5 percent.
The report stated that growth in the wholesale and retail trade segment more than halved during FY19 compared to last year. On one hand, the lackluster performance of the commodity-producing sectors dragged the output of the sub sector to some extent, it said adding that on the other hand, despite a net contraction in Large Scale Manufacturing (LSM) and crops, the increase in wholesale and retail trade still reflected higher price impact of imports, due to exchange rate depreciation, despite the decline in their growth in FY19.
Transport, storage and communication performed better during FY19 compared to a year earlier while growth in road transport, one of the heavyweight segments, nearly doubled compared to last year.
Also noteworthy was the continuing improvement in the railways segment. According to official sources, Pakistan Railways generated higher earnings during Jul-Mar FY19 compared to a year earlier, having introduced 24 new trains as well as a trains tracking system which helped improve fuel efficiency.
Meanwhile, growth in the air transport segment remained at 3.4 percent, similar to last year. The Third Quarter of FY19 period appeared to offer some respite to PIA, as the national flag carrier claimed to have reached operational break-even during the period.
Elsewhere, in the telecom sector, cellular teledensity continued to rise, from 72.8 percent as of June 2018 to 75.9 percent by end-March 2019; similarly, broadband penetration increased from 28.3 percent as of June 2018 to 32.6 percent as of March 2019. The Q3-FY19 period was an eventful one for PTCL, with profits for the three-month period nearly doubling compared to a year earlier. Finance and insurance also witnessed a slowdown compared to last year, it said adding the lower growth in gross value addition by scheduled banks, which have the greatest share in the segment, set the tone for the moderation in the face of subdued growth of deposits while their investments declined.
Meanwhile, performance of the equity market remained dismal. Since the portfolio of insurance companies and mutual funds is largely dominated by investments in equity market, that also adversely effected the segment’s performance. From a long-term perspective, it is worth highlighting that gaps in logistics performance may have prevented the services sector from realizing its full potential over the years. This especially applies to segments like wholesale and retail trade and transport, storage and communication, which have the largest weight within services.
More broadly, better logistics can also enhance the output of commodity-producing sectors, and thus impact real GDP growth as a whole. Thus, being mindful of and addressing the gaps in logistics performance merits high priority.