FeaturedNationalVOLUME 16 ISSUE # 11

Contrasting projections

The State Bank of Pakistan and the World Bank have made different forecasts for the national economy in the current financial year. Against the World Bank’s estimates of 0.5pc, the central bank projected the economy to grow between 1.5 and 2.5p. With the world economy expected to increase by 4pc and the South Asia region at around 3.3pc, Pakistan’s growth prospects are disappointing, even if it achieves the government’s target.

The low economic growth should be a cause of concern for the government of Prime Minister Imran Khan and his economic team. However, the real issues of people are rising prices and unemployment. The pandemic has worsened them. The government will have to take meaningful measures to reduce inflation and provide jobs to people and they have nothing to do with improving or falling fiscal indicators. Over 20.76 million people lost their jobs during the first wave of the pandemic, according to the government’s own estimate. At least 35pc of the population (approximately 55.74 million) was working before the outbreak. However, the recovery process started after July 2020, and 33pc of the population reported working after April–July 2020 (approximately 52.56 million), according to the Pakistan Bureau of Statistics (PBS). Even if the government’s claim is true, over one million people still have not found their lost jobs. Sindh was most-affected as its working population reduced to 23pc during the Covid-19 period as compared to 38pc before the pandemic. The Punjab followed with a 14pc decline and Balochistan with an 11pc decrease.

According to the data of 6,000 households, collected from all over the country by the Pakistan Bureau of Statistics during October 20 to November 5, 2020, the impact of the crisis was more severe in urban areas. The report said 40pc of households in Pakistan faced moderate or severe food insecurity in the aftermath of the pandemic. It said 60pc households had adequate access to food in both quality and quantity and 30pc faced moderate food insecurity and uncertainties about their ability to obtain food. They were forced to compromise on the quality and quantity of their food.

After suffering 0.4pc contraction last year, Pakistan’s growth rate is expected to remain 0.5pc for the current financial year, according to the World Bank. In its report titled “2021 Global Economic Prospects,” it said the services sector in Pakistan would be affected and Pakistan’s economy could grow at a rate of 1.3pc in the next two years. It also observed that the country’s poor would be affected by the low growth rate. “Deferred loans brought relief to the developing countries but Pakistan needs stable economic policies in the long-term. After the pandemic, the global economic growth rate is expected to be 4pc while it will be lower in South Asia at around 3.3pc. Unemployment is also predicted to increase as a direct result of the coronavirus,” it noted.

On the other hand, the State Bank of Pakistan (SPB) has projected the real GDP growth in the range of 1.5-2.5pc for FY21 but said risks attached with the Covid-19 could hurt the growth. As the economy recovers from the Covid-19-induced contraction, it is now faced with uncertainty related to the intensification of the second wave of the pandemic. However, downside risk to the projection includes the ongoing second wave of Covid-19, which has swept across many countries and, in Pakistan’s case, gained momentum in November. Real GDP growth is projected to be in the range of 1.5 to 2.5 per cent in FY21. It is based on the current trends of economic activity, according to the first quarterly report of the SBP.

The central bank noted that the improvement in various economic indicators during 1QFY21 is encouraging. However, its continuation in the short term depends to a large extent on the trajectory of the pandemic, while sustainable growth over the medium term would require progress on the structural reforms front. However, supply-side shocks from uncertain weather conditions cannot be ruled out either while there are also potential upsides, including the development and distribution of an effective vaccine and its possible early availability. The fiscal deficit is projected to remain on track to meet the annual target of 7pc of GDP. “The higher year-on-year fiscal deficit led to an increase in the stock of public debt while the buildup of government deposits was relatively contained compared to 1QFY20, which contributed to a lower pace of debt accumulation this year,” it noted.

People cannot expect immediate relief from rising prices as inflation is projected to remain high in the country. The SBP has projected average inflation in FY21 to remain in the 7–9pc range. “It is important to highlight that food inflation, triggered by supply-side factors, has been driving up headline inflation recently,” it said.

The government can blame the pandemic for rising unemployment but it has no justification for high inflation. According to recent figures released by the Asian Development Bank, inflation in Pakistan is the highest in the Asia-Pacific region and at least twice its South Asian neighbours. Increasing food prices are seriously hurting people, especially low and middle-income groups. Though Consumer Price Index (CPI) inflation has decreased to around 9pc during the last two months after peaking to over 14pc in January, yet high food prices continue to test the patience of people. Flour and sugar prices and shortages have eroded the credibility of the government. The situation belies tall claims of economic recovery. The common people cannot see improving economic indicators: they need immediate respite from high prices.