InternationalVOLUME 15 ISSUE # 09

Out of the wilderness?

The government claims to have brought the country out of an economic mess but the opposition paints a bleak picture of the economy despite some positive signs noted by international organizations.

Inflation, which directly affects the common man, is at its peak in Pakistan. According to media reports, Pakistan’s economic meltdown has eroded between 30 and 40 percent jobs in labor market, pushing more people below the poverty line, in the first 15 months of the Pakistan Tehreek-i-Insaf (PT) government of Prime Minister Imran Khan, which had come to power on the back of promises to provide 10 million jobs. The opposition claims one million more people may lose jobs in the next few years. However, the government has rejected the claims about jobs lost. It is a fact that thousands of people have lost jobs, but there is no institution in Pakistan which could confirm or deny it.

Despite the negative developments, signs of recovery are visible. In a recent report, the Asian Development Bank said signs of economic stabilisation were emerging in Pakistan during the ongoing fiscal year 2019-20. The ADB, in its Asian Development Outlook 2019 Supplement, said that inflation in Pakistan for the first three months of the ongoing fiscal year averaged 10.1 per cent despite “tight monetary policy and modestly strengthening currency”. The bank also highlighted that after a “steep growth slowdown” in Pakistan the previous fiscal year, “signs of economic stabilisation” were being seen in fiscal year 2020.

The ADB has also approved two loans totaling $1.3 billion for budgetary support and key reforms in Pakistan. It approved $1 billion in immediate budgetary support to Pakistan to “shore up the country’s public finances” and help strengthen a “slowing economy.” The bank also approved a $300 million policy-based loan that will help the government address financial sustainability, governance, and energy infrastructure policy constraints in the energy sector.

In a significant development, Moody’s Investors Services has upgraded Pakistan’s outlook from “negative” to “stable”, reaffirming the country’s rating of B3. “The change in outlook to stable is driven by expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility. Such developments reduce external vulnerability risks, although foreign exchange reserve buffers remain low and will take time to rebuild,” it said.

The rupee in open market has risen to its five-month high as demand for the greenback fell owing to the decline in imports whereas increase in the dollar from lending agencies and foreign investment in government papers helped stabilise the rupee-dollar parity. According to Bloomberg, Pakistan’s economy has posted early successes so far. The fiscal deficit dropped by half to 0.7% of gross domestic product in the three months through September compared with the same period last year, according to government data. The current account turned into a surplus for the first time in four years in October. Investors are following suit. Foreigners invested about $1.2 billion into Pakistan Treasury bills since July after virtually zero inflows in the past two years, it noted.

Pakistan’s exports of goods during November 2019 have increased by 9.6pc to $2.02 billion while imports declined by 17.53pc to $3.815 billion over the corresponding month of the last year, according to the Ministry of Commerce. Exports were recorded at $1.843 billion while imports at $4.626 billion in the same month last year (November 2018). During July-November 2019/20, the country’s exports were recorded at $9.55 billion against $9.113 billion in the corresponding month, showing an increase of 4.8 percent (or $437 million), while imports were slashed by 19.27 percent (or $4.546 billion) to $19.046 billion. In the same period last year, imports were recorded at $23.59 billion.

The five-month trade deficit was recorded at $9.496 billion against the corresponding period’s deficit of $14.479 million. It indicates the trade deficit has declined by 34.4 percent or $4.983 billion during the five months. The trade deficit in November 2019 was recorded at $1.795 billion while in November 2018, it was $2.783 billion, depicting a sizable decline of 35.5pc (or $1 billion) in one month.

The current account balance recorded a surplus in October after a gap of four years which is an indication of receding pressures on the country’s external accounts. The government’s primary balance is estimated to record a surplus in the first quarter of FY20, a first since Q2FY16.

In its recent report, the State Bank of Pakistan said the recent economic data suggested that economic activity was strengthening in export-oriented and import-competing sectors while inward-oriented sectors continued to experience a slowdown in activity. The Federal Board of Revenue tax collections grew 16.2pc year-on-year in the Jul-Oct period compared to 6.4pc during the same period last year. In the light of the temporary nature of increases, continued softness in domestic demand, and recent appreciation of the currency on the back of improving market sentiment, the SBP was of the view that inflationary pressures were expected to recede in the second half of the current fiscal year.

The government’s claim of an economic turnaround is also supported by a recent report in Bloomberg, which quoting the International Monetary Fund (IMF), said Pakistan was anticipated to be among top 20 drivers of growth by 2024. The forecast also includes China, India, Thailand, Malaysia, Japan, South Korea, Philippines and Bangladesh from Asian countries.

Pakistan’s economic indicators have started showing signs of a turnaround in 15 months of Prime Minister Imran Khan’s government as foreign direct investment, exports and remittances have increased while the current account deficit decreased sharply. The forecasts indicate the country is firmly on the path to progress and people will start reaping fruit in few years. However, the people’s main issue is rising inflation and they need immediate relief. They do not know whether economic indicators are improving or not.