FeaturedNationalVOLUME 16 ISSUE # 04

Depressing forecasts

International and national estimates project Pakistan’s economy to grow at 2pc in the current fiscal year. The meagre development projection is encouraging after contraction of 0.4pc in the last fiscal year, but depressing when seen in the context of regional countries, which are expected to grow at 10.5pc in case of the Maldives, 8pc for India, followed by 6.8pc growth in Bangladesh and 4.1pc in Sri Lanka. Pakistan’s growth will be the fifth lowest among South Asian countries.

The meagre growth means Pakistan will not be able to create jobs for people in the current year either after estimates say young Pakistanis may have lost between 1.5 million and 2.3 million jobs in the wake of the coronavirus pandemic that forced the authorities to impose strict lockdown restrictions and resulted in an economic downturn in the country. The growth rate of 2pc, which is in line with the government’s own estimates, also belies its claims that Pakistan is the fastest growing country in the region.

According to the Asian Development Outlook – Update, Pakistan’s growth is forecast to recover in fiscal year 2020-21 as economic sentiment improves with the expected subsiding of Covid-19 and the resumption of structural reform. The ADB’s flagship publication projected the Maldives, which was the worst affected by the spread of the coronavirus pandemic, could grow at the fastest pace of 10.5pc among eight South Asian nations. India, the second worst affected country economically by the pandemic, is projected to grow at a rate of 8pc in 2020-21, followed by 6.8pc growth in Bangladesh and 4.1pc in Sri Lanka. It noted that Pakistan’s economy had contracted 0.4pc in the last fiscal year, compared with 20.5pc contraction in the Maldives and 9pc contraction in India. The ADB said its forecast of 2pc gross domestic product (GDP) growth assumes that Covid-19 impact will subside by the end of 2020 and the resumption of structural reform under an ongoing International Monetary Fund (IMF)’s Extended Fund Facility to address macroeconomic imbalances.

Fortunately, Pakistan’s agriculture is expected to continue to lend impetus to GDP growth. Growth in industry is forecast to improve in FY21, led predominantly by construction and small-scale manufacturing. Spurred by improved growth in agriculture and industry, coupled with an expected improvement in domestic demand overall, services should also contribute to growth in the current fiscal year, according to the report. Fiscal deficit is forecast to decline to 7pc of GDP in the current fiscal year as compared to 8.1pc in the last fiscal year. However, the current account deficit is anticipated to widen to 2.4pc of GDP against 1.1pc in the last fiscal year.

The ADB said remittances should continue to cushion the current account deficit but will likely be lower than the peak of $23.5 billion in the last fiscal year due to “layoff of Pakistani workers overseas, in particular in the Persian Gulf, as economic activity remains soft globally”. Rising food prices pushed inflation to 10.7pc in the last fiscal year, which is now projected to slow to 7.5pc this fiscal year. “Pakistan has achieved notable success in containing the dual health and economic challenge presented by Covid-19,” said ADB Country Director for Pakistan Xiaohong Yang. “As the curve flattens and business activity resumes, the economy is showing signs of resilience and recovery,” she noted.

Along with the GDP growth forecast, the ADB has also shared findings of a new benchmark for determining the happiness of citizens of different nations under the Wellness Index. The index too does not project  good health for the economy and society. Out of 153 countries, Pakistan scored only 27.24, which placed it at 149th spot. Only four nations have performed worse than Pakistan — Afghanistan (23.56), Nigeria (23.75), Central African Republic (14.17) and Chad (8.38).

Meanwhile, Pakistan’s central bank has left the key interest rate unchanged at 7pc for the next two months in anticipation of an uptick in inflation reading in the short term in the country. According to the State Bank of Pakistan, the country is estimated to achieve gross domestic product (GDP) growth of 2pc in FY21 compared to contraction of 0.4pc in FY20. Business confidence and the outlook for overall economic growth have improved compared to the situation in June. The inflow of foreign currencies on account of workers’ remittances is expected to remain on the higher side against assumptions of a notable drop in the months to come. Exports are expected to increase with an improvement in the Covid-19 situation in the US and Europe and reopening of global markets, it hoped.

The country’s foreign exchange reserves have improved to pre-Covid-19 levels at $12.8 billion, which are sufficient for three months of imports. Besides, the current account balance has turned into surplus in July – the first month of the current fiscal year 2021. The manufacturing sector has started recovering. However, the performance of the agriculture sector is feared to remain sluggish due to a locust attack and recent heavy rainfall nationwide. Inflation has slightly accelerated over the past few weeks due to supply-side shocks in the food sector. Demand-side risks to inflation mostly remained muted in the economy. However, the SBP has kept unchanged its projections for average inflation reading at 7-9pc for the current fiscal year. Pakistan had faced similar supply side shocks in the food sector in November-December last year. Later, the government overcame the issues. On the global front, the future trajectory of oil prices will also have an important bearing on the domestic inflation outlook.

Rising prices and unemployment are the biggest issues of the people of Pakistan and recent reports indicate there will not be any immediate relief for them. In an earlier report, the ADB feared that between 1.5 million and 2.3 million young Pakistanis had lost jobs during the pandemic. The country’s unemployment rate that stood at 8.9pc in 2019 is likely to hover between 17.3 and 21.5pc in the current year. According to the government’s own estimates, between 1.4m and 18.53m jobs have been lost in the country and at least 10 million more people have slipped below the poverty line, raising the number of poor people from the existing figure of 50m to 60m. The government will have to take urgent measures to raise incomes of the common people. Only opening Langar Khanas to provide free food to the poor and homeless is not enough. They need regular jobs and means to earn their own living.