NationalVOLUME 15 ISSUE # 21

Hoping for V-shaped recovery

Pakistan expects a V-shaped economic recovery after the spread of the coronavirus slows down. It sounds optimistic and unrealistic in the current situation when the government has missed all targets for the last fiscal year. However, it looks possible in the context of pre-pandemic financial indicators, which were improving sharply.

Undoubtedly, the government has miserably failed to achieve its targets and it will have to review its policies for a better performance next year. The pandemic cannot be blamed for all ills of the country. However, it is a fact that fiscal indicators were improving fast when the coronavirus struck. The pre-pandemic situation was marked by extraordinary improvement on the external front, driven by a 70.8 per cent plunge in the current account deficit to $3.3 billion during July-April FY20. It was mainly due to a 29.5pc contraction in the trade deficit and a 5.5pc increase in workers’ remittances.

It was accompanied by a surge in foreign direct investment of 137.3pc to $2.1b in July-March, according to the latest Pakistan Economic Survey. It was attributed to an improvement in the Ease of Doing Business Index by 28 places. Similarly, improvements were witnessed on the fiscal side, where the government even posted a primary surplus in FY20, and year-on-year growth in tax collection, though it missed the target.

However, in the post-pandemic situation, the economy has taken a hit with GDP in FY20-21 expected to shrink by -0.38pc. It is led by agriculture contributing an increase of 0.5 percentage points while the industrial and services sector are projected to drag the overall growth figure by 0.52pps and 0.36pps, respectively.

While agriculture has largely been immune to effects of coronavirus, the government fears for other sectors as over 72pc of Pakistan’s non-agriculture workforce is engaged in the informal sector, with no social security or insurance cover. “The estimated size of informal employment in the non-agriculture sector is around 27 million, with only food, pharmaceuticals, and few services still functional, these employees will be worst affected,” it says.

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.

With falling international commodity prices, annual inflation in the outgoing fiscal year will ease to 10.7 per cent, down from the earlier projection of 11.8pc. The Pakistan Economic Survey 2019-20 noted that the falling crude oil prices will further ease inflationary pressures and the government expects it to enter single-digit in the next fiscal year.

The Covid-19 outbreak has weakened demand putting downward pressure on commodity prices but there is also a risk of supply disruption. On the other hand, the survey said that government action against hoarders and providing maximum relief to the public through various packages, including subsidised sales of goods at Utility Stores, which helped improve the supply and control price hike.

The government, after the emergence of the pandemic, took several policy, administrative and relief measures to help bring down inflation to single-digit. The rate fell to 8.5pc in April — a third successive month showing a decline. The government also announced an economic relief and stimulus package and reduced rates of petroleum products in March and April. The reduction in petroleum prices further decelerated the inflation rate in April.

To help stave off the effect of the pandemic, the government has launched an aggressive policy response, including a Rs1.24tr stimulus package. It included Rs200 billion earmarked for daily wage workers and employees who have lost their jobs. A registration portal has been developed to screen laid off workers and employees. In addition, Rs12,000 are being distributed to around 12m families all over Pakistan through the Ehsaas Emergency Cash Programme. It was coupled with easing on the monetary front that included the key interest rate cut by 525 basis points to 8pc as well as the multiple refinancing schemes to help businesses stay afloat.

Pakistan feared that exports and remittances could suffer and unemployment would increase if the lockdowns and social distancing prolonged in the world and in the country. Pakistan’s gross domestic product (GDP) is estimated to have faced a Rs3tr loss. The GDP was expected to increase by 3 per cent with the support of economic policies, but it will now go down by -0.4pc. It means the national income would actually face 3pc to 3.5pc loss during this year. FBR revenues were projected to reach Rs4.7tr before the Covid-19 crisis, but they would now be Rs3.9tr. About Rs800b loss was simply on account of revenue.

The government has set the Public Sector Development Programme (PSDP) for the next financial year at Rs650 billion, including foreign assistance of Rs72.5b, against the backdrop of the challenges emanating from the coronavirus pandemic that enhanced the importance of public investment to trigger job creation, revive economic activity and, at the same time, alleviate poverty.

The economy was poised to take off after three years of slowdown but the pandemic hit people and businesses hard from mid-March, when Pakistan’s financial indicators had started improving. International financial institutions also recognised Pakistan’s financial progress. Moody’s Investor Service had upgraded Pakistan’s economy outlook from negative to stable in December. The World Bank also acknowledged Pakistan as one of the top 10 “most improved” countries in the Ease of Doing Business Index. Pakistan’s current account deficit had narrowed 75pc to $2.153 billion in the first six months of the current fiscal year as imports of goods declined sharply. Higher foreign investment and increased remittances from Pakistani workers abroad also contributed to the improvement in the current account balance. Exports had increased by 4.5pc to $12.391b in July-December FY20, while imports fell by 20.9pc to $22.2b in the six months of the last fiscal year. Foreign direct investment into Pakistan had surged by 68.3pc to $1.340b in July-December FY20.

In September last year, Pakistan’s current account deficit had dropped by 80pc to a 41-month low of $259 million, with a 111.5pc rise in foreign direct investment (FDI) and a 194pc increase in private investment. With FDI of $1.34 billion during the first half of the last fiscal year, a 68.3pc increase was registered in January, compared to $796.8 million of the same period of the previous fiscal year. In February, the reserves of the State Bank of Pakistan (SBP) also hit a 21-month high at $11.586 billion. The economic positivity was also reflected by the Karachi Stock Exchange (KSE), which registered a 16-month high in February, crossing the 42,000 point mark after a cumulative increase of 13,000 points in four months.

It proved Pakistan was moving ahead with a rapid pace when the pandemic stalled its progress. It is hoped the economy will take off with greater speed as soon as the situation

Pakistan expects a V-shaped economic recovery after the spread of the coronavirus slows down. It sounds optimistic and unrealistic in the current situation when the government has missed all targets for the last fiscal year. However, it looks possible in the context of pre-pandemic financial indicators, which were improving sharply.

Undoubtedly, the government has miserably failed to achieve its targets and it will have to review its policies for a better performance next year. The pandemic cannot be blamed for all ills of the country. However, it is a fact that fiscal indicators were improving fast when the coronavirus struck. The pre-pandemic situation was marked by extraordinary improvement on the external front, driven by a 70.8 per cent plunge in the current account deficit to $3.3 billion during July-April FY20. It was mainly due to a 29.5pc contraction in the trade deficit and a 5.5pc increase in workers’ remittances.

It was accompanied by a surge in foreign direct investment of 137.3pc to $2.1b in July-March, according to the latest Pakistan Economic Survey. It was attributed to an improvement in the Ease of Doing Business Index by 28 places. Similarly, improvements were witnessed on the fiscal side, where the government even posted a primary surplus in FY20, and year-on-year growth in tax collection, though it missed the target.

However, in the post-pandemic situation, the economy has taken a hit with GDP in FY20-21 expected to shrink by -0.38pc. It is led by agriculture contributing an increase of 0.5 percentage points while the industrial and services sector are projected to drag the overall growth figure by 0.52pps and 0.36pps, respectively.

While agriculture has largely been immune to effects of coronavirus, the government fears for other sectors as over 72pc of Pakistan’s non-agriculture workforce is engaged in the informal sector, with no social security or insurance cover. “The estimated size of informal employment in the non-agriculture sector is around 27 million, with only food, pharmaceuticals, and few services still functional, these employees will be worst affected,” it says.

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.

With falling international commodity prices, annual inflation in the outgoing fiscal year will ease to 10.7 per cent, down from the earlier projection of 11.8pc. The Pakistan Economic Survey 2019-20 noted that the falling crude oil prices will further ease inflationary pressures and the government expects it to enter single-digit in the next fiscal year.

The Covid-19 outbreak has weakened demand putting downward pressure on commodity prices but there is also a risk of supply disruption. On the other hand, the survey said that government action against hoarders and providing maximum relief to the public through various packages, including subsidised sales of goods at Utility Stores, which helped improve the supply and control price hike.

The government, after the emergence of the pandemic, took several policy, administrative and relief measures to help bring down inflation to single-digit. The rate fell to 8.5pc in April — a third successive month showing a decline. The government also announced an economic relief and stimulus package and reduced rates of petroleum products in March and April. The reduction in petroleum prices further decelerated the inflation rate in April.

To help stave off the effect of the pandemic, the government has launched an aggressive policy response, including a Rs1.24tr stimulus package. It included Rs200 billion earmarked for daily wage workers and employees who have lost their jobs. A registration portal has been developed to screen laid off workers and employees. In addition, Rs12,000 are being distributed to around 12m families all over Pakistan through the Ehsaas Emergency Cash Programme. It was coupled with easing on the monetary front that included the key interest rate cut by 525 basis points to 8pc as well as the multiple refinancing schemes to help businesses stay afloat.

Pakistan feared that exports and remittances could suffer and unemployment would increase if the lockdowns and social distancing prolonged in the world and in the country. Pakistan’s gross domestic product (GDP) is estimated to have faced a Rs3tr loss. The GDP was expected to increase by 3 per cent with the support of economic policies, but it will now go down by -0.4pc. It means the national income would actually face 3pc to 3.5pc loss during this year. FBR revenues were projected to reach Rs4.7tr before the Covid-19 crisis, but they would now be Rs3.9tr. About Rs800b loss was simply on account of revenue.

The government has set the Public Sector Development Programme (PSDP) for the next financial year at Rs650 billion, including foreign assistance of Rs72.5b, against the backdrop of the challenges emanating from the coronavirus pandemic that enhanced the importance of public investment to trigger job creation, revive economic activity and, at the same time, alleviate poverty.

The economy was poised to take off after three years of slowdown but the pandemic hit people and businesses hard from mid-March, when Pakistan’s financial indicators had started improving. International financial institutions also recognised Pakistan’s financial progress. Moody’s Investor Service had upgraded Pakistan’s economy outlook from negative to stable in December. The World Bank also acknowledged Pakistan as one of the top 10 “most improved” countries in the Ease of Doing Business Index. Pakistan’s current account deficit had narrowed 75pc to $2.153 billion in the first six months of the current fiscal year as imports of goods declined sharply. Higher foreign investment and increased remittances from Pakistani workers abroad also contributed to the improvement in the current account balance. Exports had increased by 4.5pc to $12.391b in July-December FY20, while imports fell by 20.9pc to $22.2b in the six months of the last fiscal year. Foreign direct investment into Pakistan had surged by 68.3pc to $1.340b in July-December FY20.

In September last year, Pakistan’s current account deficit had dropped by 80pc to a 41-month low of $259 million, with a 111.5pc rise in foreign direct investment (FDI) and a 194pc increase in private investment. With FDI of $1.34 billion during the first half of the last fiscal year, a 68.3pc increase was registered in January, compared to $796.8 million of the same period of the previous fiscal year. In February, the reserves of the State Bank of Pakistan (SBP) also hit a 21-month high at $11.586 billion. The economic positivity was also reflected by the Karachi Stock Exchange (KSE), which registered a 16-month high in February, crossing the 42,000 point mark after a cumulative increase of 13,000 points in four months.

It proved Pakistan was moving ahead with a rapid pace when the pandemic stalled its progress. It is hoped the economy will take off with greater speed as soon as the situation improves.

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