FeaturedNationalVOLUME 15 ISSUE # 24

Hiding behind the pandemic?

Pakistan has flattened the coronavirus curve as more than 81pc of patients have recovered. It is a highly positive sign for the people of the country but it will shift their focus to the poor economy, for which the government squarely blames the pandemic.

The economy shrunk by -0.38pc in the last fiscal year, which ended on June 2020. Data released by the government presents a dismal economic performance as all indictors painted broad-based setbacks last year and the government blamed Covid-19 for a loss of over Rs3 trillion to the national income. The data showed that not only most of the economic sectors actually went down but a few ones in the positive zone also missed targets.

The government feared that exports and remittances could suffer and unemployment would increase if lockdowns and social distancing prolonged in the world and the country. The GDP was expected to increase by 3pc with the support of economic policies, but went down by -0.4pc, a 3pc to 3.5pc loss. FBR revenues, which were projected to reach Rs4.7tr before the Covid-19 crisis, hardly reached Rs3.9tr, making a loss of about Rs800b.

The agriculture sector performed better with 2.67pc growth even though it missed the 3.5pc target. The industry went down by -2.64pc against a 2.3pc growth target, while the services sector dipped by -3.4pc against a 4.8pc growth target. A 7.1pc contract in transport and communication and 22.9pc fall in manufacturing, while the fiscal deficit was estimated to touch 9.4pc against the 7.2pc target.

According to the Economic Survey, public debt increased to 88pc of GDP. The external debt and liabilities stand at $76.5 billion. The government borrowed Rs7.6tr in the first year but only Rs1.5tr was on account of expenditure while all others accrued on account of revaluation of old debt due to devaluation or over Rs1.2tr for cash buffer for strategic reason. At least another 10 million people are expected to slip below the poverty line as a consequence of the coronavirus pandemic. On the basis of Rs3,250.3 per adult per month, 24.3pc of the population is below the poverty line. Lockdowns and restrictions required to stem the spread of coronavirus caused a loss of 1.4 million to 18.53m jobs in the country.

Pakistan’s gross public debt as a proportion of revenue collection has risen sharply in recent years. The tax exemptions cost in the last fiscal year rose to Rs1.149 trillion, up 18.25 per cent from Rs972.4 billion in the preceding year. The first seven months of the last fiscal year saw high inflationary pressures as CPI rose by 14.6pc in January, compared to 5.6pc in the same month last year, primarily due to a steep surge in food inflation. The trend came about due to a number of factors such as temporary supply disruptions in perishables and higher transportation costs.

On the spending side, total expenditures grew by 15.8pc to Rs6.376tr (15.3pc of GDP) as compared with Rs5.506tr (14.5pc of GDP) a year ago. Of it, current expenditure surged by 16.9pc to Rs5.611tr in nine months versus Rs4.798tr in 9MFY19. The increase was primarily attributed to higher mark-up payments, grants for social spending and spending on social protection. The grants payment soared by 50pc, followed by a 28pc increase in mark-up on both domestic and foreign debt. The defence expenditures also edged up by 3.6pc to reach Rs802.4b in the 9MFY20, as against Rs774.7b in the same period last year. Similarly, subsidies amounted to Rs169.5b, versus Rs96.8b last year, registering a surge of 75pc with the bulk of them used on inter-Disco tariff differentials.

Development expenditure grew by 14.6pc to Rs751.7b against Rs655.9b in the same period last year. The sharp rise has been realized across both federal and provincial levels. In particular, PSDP expenditures grew by 24.9pc during July-March, FY20, in contrast to a sharp decline observed during the same period last year. In absolute term, PSDP expenditures escalated to Rs722.5b in the first nine months of the last fiscal year against Rs578.5b the previous year.

The government seeks growth of gross domestic product (GDP) at 2.1pc for the fiscal year 2020-21, with targets set for three key areas of the national economy – agriculture, industry and services sectors. However, the Annual Development Plan (ADP) underlines that growth targets are subject to risks of extreme weather fluctuations, the ongoing Covid-19 pandemic, interruption in envisaged reforms and non-aligned monetary and fiscal policies.

Among the economic risks, the finance ministry noted that for the first time in many decades, Pakistan’s economy has entered into recession as GDP contracted by 0.4pc in 2019-20. As per the current estimates, economic growth is projected at 2.1pc in 2020-21. However, there are downward risks to target growth emanating from two uncertainties — the worsening global economic situation and prolonged recovery in domestic markets. If these risks materialise, the tax revenue collection target is likely to be impacted. On the other hand, energy sector losses are also a major risk to the budget. It includes high off-budget arrears and liabilities emanating from non-reduction of flow of energy sector losses, and non-payment of arrears and liabilities.

According to the government, the economy was poised to take off after three years of slowdown but the pandemic has hit people and businesses hard since mid-March 2020. It is a fact that fiscal indicators were bad even before the onset of the pandemic. The economy had slowed down, millions of people lost jobs and thousands of businesses shut down as a result of economic policies of the present government. It blames the pandemic for all its failures while there was no pandemic in the country in the first nine months of the last fiscal year. With an improved Covid-19 situation, the government will be left with no excuse for its poor performance.