NationalVOLUME 17 ISSUE # 1

High growth forecasts

International financial institutions have revised their forecasts for Pakistan after its economic indicators improved significantly. They have largely kept international growth projections unchanged but upgraded Pakistan’s GDP growth for 2021 to 3.9pc from April’s forecast of 2.1pc. The new projections not only prove the opposition wrong, which had accused the government of figure fudging, but also endorse the fact that the country has been put on the path to progress and prosperity.

However, Pakistan’s economy still faces many internal and external threats. Its major challenges are stabilisation and protection of the economy against rising global prices, current account deficit, rising debt servicing, and continued losses of public sector enterprises. However, signs of an economic recovery are quite visible. Pakistan’s exports, remittances and tax collection have reached an all-time high in recent months. Overseas Pakistanis remitted a record $29.4 billion during 2020-21. Data released by the State Bank of Pakistan (SBP) showed that remittances had posted a 27pc year-on-year growth, which was the fastest rate of expansion since FY03. The central bank said that with inflows of around $2.7b in June (9pc growth year-on-year) and 8pc (month-on-month), workers’ remittances continued their unprecedented streak of above $2b for a record 13th consecutive month. The remittances alone helped improve the country’s external sector position despite challenging global economic conditions in the past year.

Pakistan’s exports also reached an all-time high in July, as shipments reached $2.35 billion, up 17.3pc from the corresponding month last year. The exports of goods and services stood at $31.3 billion in the last fiscal year. Instead of relying on traditional export-oriented sectors, including textile, leather, sports goods, surgical goods and carpets, the government is focusing on diversifying markets and products. Exports of $2.35 billion are not only over 17pc higher than July 2020 but also 24pc higher than the pre-pandemic exports of $1.89 billion in July 2019. The government plans to increase exports to over $40 billion during the current financial year.

In another significant achievement, revenue collection in July rose to Rs413 billion, which was an increase of over 36pc from the last year’s figure. According to provisional data released by the Federal Board of Revenue (FBR), the collection was 21pc more than the target set for the month. The feat prompted Prime Minister Imran Khan to appreciate the efforts of tax officials on Twitter. “I commend the efforts of the FBR in achieving a record revenue collection in July. This is a reflection of the government’s policies for sustained economic growth and revival,” he wrote.

The developments have forced international financial institutions to upgrade their projections for Pakistan. The International Monetary Fund (IMF) revised up its projection for Pakistan’s real Gross Domestic Product (GDP) growth rate to 3.9pc. In its World Economic Outlook report 2021 (update), the IMF said, “Projections are revised up for the Middle East and Central Asia due to robust activity in some countries, such as Pakistan”. Earlier in April this year, the IMF had projected Pakistan’s real GDP to grow at 1.5pc in the year 2021 despite a higher projected rate of 3pc by the State Bank of Pakistan (SBP).

According to the IMF, the global economy is projected to grow 6pc in 2021 and 4.9pc in 2022. Its 2021 global forecast is unchanged from the April 2021 projections, but with offsetting revisions. Prospects for emerging markets and developing economies have been marked down for 2021, especially for Emerging Asia. By contrast, the forecast for advanced economies has been revised up. The revisions reflect pandemic developments and changes in policy support. “The 0.5 percentage-point upgrade for 2022 derives largely from the forecast upgrade for advanced economies, particularly the United States, reflecting the anticipated legislation of additional fiscal support in the second half of 2021 and improved health metrics more broadly across the group. Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalisation of activity later this year (almost all advanced economies) and those that will still face resurgent infections and rising Covid-19 death tolls,” it added.

The Asian Development Bank (ADB) also estimated Pakistan’s growth at 3.9pc in FY2021, supported by the strong industrial growth coupled with steady remittance inflows. In its latest Asian Development Outlook 2021, it projected 7.2pc economic growth for developing Asia this year, compared with its 7.3pc forecast in April, as renewed Covid-19 outbreaks slow the recovery in some economies in the region. The growth outlook for 2022 is upgraded to 5.4per cent from 5.3pc. Projections for South Asia, Southeast Asia, and the Pacific for 2021 are lowered as renewed outbreaks are met with containment measures and restrictions, hampering economic activity. South Asia’s growth outlook for fiscal year 2021 is lowered to 8.9pc from 9.5pc. The forecast for India is downgraded by 1 percentage point to 10pc. Southeast Asia’s 2021 outlook is revised to 4pc from 4.4pc, while the projection for Pacific economies is lowered to 0.3pc from 1.4pc.

East Asia’s growth outlook for 2021 is raised to 7.5pc, from 7.4pc in April, amid a stronger-than-expected recovery by the newly industrialised economies of Hong Kong, China; the Republic of Korea, and Taipei, China. The sub-regional growth forecast for 2022 is retained at 5.1pc. The growth outlook for the People’s Republic of China is maintained at 8.1pc this year and 5.5pc in 2022, amid steady performances by industry, exports and services.

The State Bank of Pakistan has also set a target of 3.94pc economic growth. However, it faces a serious threat from the fourth wave of Covid-19, especially in its commercial hub, Karachi. High prices and unemployment are also serious challenges facing the country and its people and the government will have to take urgent measures to bring down inflation and provide jobs to people.