FeaturedNationalVOLUME 16 ISSUE # 08

Optimistic estimates

Pakistan’s macroeconomic indicators are improving and the State Bank of Pakistan has revised its projections for the current fiscal year. A revised estimate of 2.5pc growth is really optimistic at a time when the Covid-19 pandemic has intensified and the government has warned of a complete lockdown if the situation worsened. Inflationary pressure because of gas and electricity prices also shows there is no immediate relief from rising prices for the people of Pakistan.

Recent improvements in macroeconomic fundamentals have led the State Bank of Pakistan to upgrade its estimates to 2.5 for the current year from its previous projection of 2pc, against the government’s target of 2.1pc. If achieved, the growth may not be substantial to meet the needs of the country and its people, but it will be far better than 0.4pc contraction last year. The new growth projection is based on a good performance of agriculture, services and industrial sectors and an assumption that the pandemic has passed. According to the State Bank of Pakistan (SBP), the economy is on course for a steady recovery, following difficult but necessary stabilisation efforts during the first nine months of the fiscal year 2019-20. In its State of Pakistan’s Economy report for the fiscal year 2019-20, the central bank noted that an unprecedented balance of payments crisis created by the unsustainable macroeconomic policies of previous years had been forcefully addressed through sizable reductions in fiscal and current account deficits. Following a round of monetary tightening during FY19, core inflation remained relatively stable, notwithstanding an uptick in headline inflation due to one-off and seasonal factors. In turn, the hard-won stabilisation was beginning to lead to the revival of economic activity and the restoration of business and consumer confidence. However, the momentum was temporarily disrupted around the last quarter of the fiscal year by the global and domestic spread of Covid-19 and lockdown measures, it noted.

Lockdown measures were remarkably successful in containing the outbreak but they strained manufacturing, retail, transport and trade-related activities. As a result, Pakistan’s real GDP is estimated to have contracted by 0.4 per cent in FY20, the country’s first brush with negative economic growth since FY52. On the external front, the market-based exchange rate, introduced in May 2019, worked as a valuable shock absorber in the wake of the pandemic. For the first time in Pakistan’s history, the exchange rate depicted orderly two-way movement reflecting foreign exchange availability in the interbank market. As a result, the shock had a relatively contained impact on the SBP’s reserves position. In fact, its net reserves buffers increased by approximately $7 billion through the fiscal year despite the outbreak.

Besides the pandemic, which has aggravated in recent weeks, possible forced repatriation of overseas workers could create grave problems for the economy. “While the short-to-medium-term focus seems appropriate given the abruptness of the health crisis, the government must also frame a long-term view and adopt a comprehensive national migration policy,” the central bank noted. Over 100,000 overseas jobs for which the recruitment process was going on in the country was disrupted due to the virus. Around 50,000 Pakistani migrants face layoffs in different countries. The jobs may not be recovered in the short term and are extremely vulnerable. According to the Bureau of Emigration and Overseas Employment, around 60,000 Pakistanis were recruited for overseas work, but they could not proceed abroad due to travel restrictions and suspension of flight operations. Besides, 50,000 emigrants returned on paid or unpaid leave as of June 20. The workers have not been laid off, but their job continuation entails risk. With the government’s estimates of pandemic job losses at approximately 14 million, poverty is expected to increase for the first time in two decades in Pakistan. According to the United Nations Conference on Trade and Development (UNCTAD), the global economy will contract 4.3pc this year due to the crisis, while a viable vaccine will not halt the spread of the economic damage. It said inequalities and vulnerabilities would worsen as the effects of the pandemic disrupt any progress made on poverty and other sustainable development goals. It also warned that the distribution of a viable vaccine is likely to expose long-entrenched inequalities in the global trading system. The pandemic has gravely wounded the world economy with serious consequences impacting all communities and individuals. Moving rapidly across borders, along the principal arteries of the global economy, the spread of the virus has benefited from the underlying interconnectedness – and frailties – of globalisation, catapulting a global health crisis into a global economic shock that has hit the most vulnerable the hardest. Millions of jobs have already been lost, millions of livelihoods are at risk, and an estimated additional 130 million people will be living in extreme poverty if the crisis persists, it said.

If a large number of overseas Pakistanis are laid off and they return home, it will not only deprive the country of valuable remittances, but also add to the rising number of unemployed and poor people. The remittances have kept Pakistan afloat even during the pandemic. Pakistan received over $2 billion in workers’ remittances for the fifth consecutive month in October, helping the country’s foreign currency reserves to cover around three months of the import bill.

Besides the pandemic, Pakistan’s most serious issues are increasing prices and unemployment, the yardsticks to assess a government’s performance all over the world. The government can blame the pandemic for rising unemployment but it has no justification for high inflation. According to recent figures released by the Asian Development Bank, inflation in Pakistan is the highest in the Asia-Pacific region and at least twice its South Asian neighbours. Increasing food prices are seriously hurting people, especially low and middle-income groups. Though Consumer Price Index (CPI) inflation has decreased to around 9pc during the last two months after peaking to over 14pc in January, yet high food prices continue to test the patience of people. According to the Pakistan Bureau of Statistics, rural food inflation rose much more rapidly in October as compared to the urban areas. Food prices in the urban and rural areas increased by 13.9pc and 17.7pc, respectively. The situation belies all claims of economic recovery. The common people cannot see “bright” economic indicators: they need immediate respite from high prices, which is their only yardstick for economic recovery.