FeaturedNationalVOLUME 16 ISSUE # 01

Early celebrations?

The government has started celebrating “economic recovery” after the Moody’s confirmed Pakistan’s B3 credit rating with a stable outlook. The government’s hope of a V-shaped recovery is highly optimistic at a time when the pandemic has not passed yet and pessimism among Pakistani business people is rising.

The government presents rising exports and a narrowing trade deficit as signs of its success. Pakistan’s exports fetched $1.998 billion in July 2020 against $1.889 billion in the same month of the last fiscal year, witnessing 5.8pc growth in dollar terms. 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 exports bounced back after a decline in the last four months from March to June. Pakistan’s exports stood at around $21 billion in the last fiscal year. Undoubtedly, it is a big achievement as compared to regional countries. Exports of India went down by 13.7pc and Bangladesh by 17pc but Pakistan’s exports grew by 5.7pc in July.

The current account deficit also narrowed by a massive 78pc to $2.96 billion in the previous fiscal year, which ended on June 30. The 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) reported. The deficit of $2.96 billion is the lowest in five years. The number improved after the government revised May’s current account surplus upward to $344 million compared to the initially reported $13 million. The improvement was initially achieved by compromising economic growth. Later, the Covid-19 outbreak slowed down the economy further and caused negative growth for the first time in 68 years. Experts say the deficit was narrowed through curtailing imports rather than increasing exports. Remittances also helped improve the situation.

Against the positives, the pandemic has added to pessimism among Pakistani business people, who had already been affected badly by the sluggish economy. According to the Business Confidence Index (BCI) Survey – Wave 19 of the Overseas Investors Chamber of Commerce and Industry (OICCI), the overall Business Confidence Score (BCS) in Pakistan stood at negative 50pc, a further drop of 5pc from the -45pc score in the Wave 18 Survey conducted in August 2019. “The huge scare caused by the pandemic came during a period when the country was already in the midst of a major economic stabilisation programme,” it said.

More than half of the country’s exporters struggle with domestic and foreign regulatory barriers, says Invisible Barriers to Trade — Pakistan 2020: Business Perspectives. The report was prepared 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. The report, based on a survey of 1,152 importers and exporters, identifies the toughest trade hurdles facing Pakistani businesses. Almost half of the 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 crank up competitiveness by addressing issues such as export inspections, tax refunds, and certification. Almost half of the challenges these firms reported stem from Pakistani rules on matters such as export inspections, tax refunds, and export certification. The invisible barriers to trade affect exporters and importers differently, and their impact varies across sectors.

Rising unemployment and a high cost of living turned out to be the biggest concerns for Pakistanis compared to the coronavirus pandemic amid shattering confidence of people in the economy, according to a new opinion poll by Ipsos, a global market research and consulting firm. People’s confidence in the economy, both in terms of its ability to absorb shocks and direction, further declined in June compared with March this year. The Global Consumer Confidence Index (GCCI), generally known as the National Index, dipped to the lowest score of 22 in June in Pakistan compared with the global average of 45.1 for the month and average of 42.5 for Middle Eastern and North African countries. The survey findings revealed that consumers had very low confidence and were reluctant to make investment decisions. They were also not very optimistic about the future of the economy and jobs. The fear of losing jobs has grown compared with the survey three months ago. Only 15pc of respondents believe that the economy was heading towards the right direction – a ratio that was 21pc in March this year. For 85pc of respondents, the economy was heading in the wrong direction while in March 79pc believed that the economy was headed south. Pakistan’s economic conditions have remained fragile for the past many years and things have further deteriorated in the last two years, except for improvement in the current account deficit that too was achieved by slowing the economic growth, it noted.

More than half of the working class has either taken a pay cut or lost a job ‑ or both ‑ because of the Covid-19 outbreak, while others’ confidence remains downbeat on fears of unemployment prospects in the near future. “Over 54pc respondents have either faced salary cuts or have been laid off by their employers in an attempt to reduce operational expenses,” according to a report by Dun & Bradstreet (D&B) Pakistan and Gallup Pakistan. It incorporated views of 1,291 residents via a telephonic survey conducted between June 4 and 16. The report said that millions of jobs were lost in Pakistan as businesses were not allowed to operate during the lockdown. Some employees were laid off while others were sent on paid or unpaid leave; creating panic amongst the working class.

The latest surveys show that Pakistan and its people will continue to face hard times in years ahead. The country will have to make more adjustments for recovery, which could be painful and lengthy. It will need long-term planning for sustained growth momentum.