NationalVOLUME 16 ISSUE # 01

Distinct signs of recovery

Pakistan’s exports and tax collection have started increasing after it eased coronavirus lockdown gradually. The Pakistan Stock Exchange has also rebounded while international financial institutions have affirmed a stable outlook for the country. It shows the country has left behind pandemic shocks and is back on track to achieve its economic targets.

The Federal Board of Revenue (FBR) has surpassed its tax collection target with a margin of Rs57 billion in July, the first month of the current fiscal year. It collected Rs300 billion against the target of Rs 243 billion. Though it is still well below the required collection of Rs 400 billion every month to achieve the revenue target of Rs4,963 billion for the fiscal year, yet it is a significant achievement and the figures will improve as the country has started opening up for business.

Pakistan’s exports have also increased by 5.8pc in July. According to statistics, the exports fetched $1.998 billion last month, against $1.889 billion in the same month of the last fiscal year. The imports stood at $3.54 billion in July, against $3.696 billion in the same month of 2019, recording a decline of 4.2pc. The overall trade balance reduced by 14.7pc, as it stood at $1.542 billion in July, compared to $1.8 billion in the same month of 2019. The current account deficit reduced by 78pc to $2.96 billion in the previous fiscal year. The current account deficit shrank to 1.1pc of gross domestic product (GDP) in FY20 compared to 4.8pc ($13.43 billion) in FY19, the State Bank of Pakistan (SBP) said. The deficit of $2.96 billion is the lowest in five years.

Pakistan can increase its exports by up to $12 billion by 2024, even after taking into account disruptions due to Covid-19, according to the International Trade Centre’s latest export potential assessment for the country. More than half of the country’s exporters struggle with domestic and foreign regulatory barriers, says the Invisible Barriers to Trade — Pakistan 2020: Business Perspectives report, made in collaboration with the World Bank Group’s country office. Market frictions such as regulatory obstacles and lack of information transparency put up to $7b of this untapped export potential at risk — especially for small businesses looking to trade more across borders, says ITC’s acting Executive Director Dorothy Tembo. “There is great scope for the government of Pakistan to streamline processes, improve quality management and work with exporters to provide consistent, transparent and timely information,” she said. The report, based on a survey of 1,152 importers and exporters, identifies the toughest trade hurdles facing Pakistani businesses. Almost half of these hurdles are homegrown, which means the government can fix many of the problems holding back exporters. The report suggests ways for the government and the private sector to improve competitiveness by addressing issues such as export inspections, tax refunds, and certification.

Moody’s Investors Service, one of three top international rating agencies, has confirmed Pakistan’s B3 credit rating with a stable outlook. “The stable outlook reflects Moody’s view that the pressures Pakistan faces in the wake of the coronavirus shock and prospects for its credit metrics in general are likely to remain consistent with the current rating level. In particular, while Moody’s sees downside risks to Pakistan’s economy because of movement and activity restrictions related to the pandemic, which would in turn intensify the government’s fiscal challenges, strong support from development partners including for external financing, coupled with effective macroeconomic policies started ahead of the crisis, contain external vulnerability and liquidity risks,” it said in a statement.

Pakistan hopes to end its six-month-long cycle of economic contraction, as the Ministry of Finance has predicted positive economic growth in coming months. If the prevalence of Covid-19 cases slows down further, economic activities will come to a normal level. However, risk is associated with the level of public conformity with Standard Operating Procedures (SOPs) that are intended to prevent the pandemic spread, it added. In the previous fiscal year, there was small but positive growth of about 1pc in the first quarter. The economic growth accelerated in the second quarter to 2.58pc. But it turned negative in the third quarter of the last fiscal year by 0.19pc following the pandemic. In the fourth quarter, the economy contracted 4.9pc.

Domestic economic activities have also accelerated with many businesses starting operations in accordance with the SOPs issued by the government. The ministry has also highlighted the impact of locust attacks on crops, saying the peak period of the attacks is not yet over. In fact, the desert locust situation has worsened and is likely to be at its peak till September 15, which may damage crops badly. For the current fiscal year, the agriculture sector’s growth is targeted at 2.8pc on the basis of better growth in crops, livestock, fisheries and forestry.

According to the government, fiscal and primary deficits are lower than expected, central bank’s reserves have increased and the current account deficit has been slashed from $20 billion to $3 billion in two years. The fiscal deficit post-Covid was expected at 9.1pc but it was recorded at 8.1pc and the primary deficit, expected at 3.1pc, was recorded at 1.8pc. The current account deficit was brought down from $20 billion to only $3 billion while the reserves of the State Bank of Pakistan have increased from $8.5 billion to $12.5 billion.

As exports have increased, imports would also surge with the reopening of the domestic economy from the lockdown. The workers’ remittances are also anticipated to increase during the current year. It is hoped economic activity will reach the level of the pre-pandemic period and its positive effects would start reaching the common man in a few months.