NationalVOLUME 16 ISSUE # 20

Pakistan ready for take-off?

The latest economic indicators show Pakistan has left behind all gloomy forecasts and will grow phenomenally despite the onset of the third wave of the Covid-19 pandemic. However, high inflation is the biggest issue of the common people and the government will have to take urgent measures to provide relief to them.

Pakistan surpassed its revenue collection target by Rs34 billion to Rs384b in April, the second highest collection in the second half of the current fiscal year (FY21), according to the provisional data. April was the second consecutive month when the revenue collection surpassed the projected monthly target despite Covid-19 impact on all segments of the economy. The net collection for April was Rs384b against a target of Rs350b, an increase of 9.7pc.

Pakistan received record remittances despite the pandemic as workers sent home an all-time monthly high of $2.8 billion in April. The State Bank of Pakistan (SBP) said the remittances grew 56pc more than during the same month last year. On a cumulative basis, the remittances have also surpassed previous records. At $ 24.2 billion in July-April FY21, they grew by 29pc over the same period last year and have already crossed the full FY20 level by more than $1 billion. The government hopes the remittances would touch the $28 billion mark by the end of the current fiscal year.

In another significant development, Pakistan’s current account deficit shrank 61pc year-on-year in April 2021, on the back of rising remittances and a healthy recovery in exports. According to the latest statistics, the current account balance posted a deficit of $200 million in April, compared to a deficit of $510 million a year ago. The deficit was, however, 506pc higher than the previous month. The current account showed a surplus of $773 million in 10 months of the fiscal year as against the deficit of $4.657 billion a year ago. The trade deficit widened 35.3pc to $3.041 billion in April after imports increased. The central bank’s foreign exchange reserves rose to $16 billion as of May 7, 2021, from $7 billion at June-end, 2019. However, net foreign direct investment in Pakistan fell 32.5pc to $1.553 billion in 10 months of the current fiscal year.

The Pakistan Stock Exchange (PSX), one of the best performing Asian markets, has made a new record by hitting all-time high volumes as investors traded 1.56 billion shares of listed companies in a day for the first time in history on May 26. Volumes soared by over 130pc compared to 677 million shares traded a day earlier, showing the rising investor confidence in the growing economy.

Moody’s Investors Service also sees robust GDP growth potential in Pakistan. The international rating agency, in its latest report, said the credit profile of Pakistan (issuer rating B3) reflects the country’s “baa2” economic strength, which is underpinned by the robust long-term GDP growth potential and large scale of the economy, balanced against low per capita incomes and global competitiveness. Its “b2” institutions and governance strength that balances still weak executive institutions and fiscal policy credibility and effectiveness against a lengthening track record of effective checks and balances and judicial independence, as well as increasing monetary and macro prudential policy effectiveness. The government’s “ca” fiscal strength driven by its high government debt burden and narrow revenue base which hinders debt affordability and reduces fiscal flexibility given ongoing infrastructure and social spending needs; and its “b” susceptibility to event risk driven by external vulnerability, as foreign-exchange reserve adequacy, though improving, remains low compared to peers, it added. However, the rating agency said the review did not involve a rating committee, and the publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future.

In contrast to all national and international estimates, Pakistan’s economy is growing nearly 4pc in the outgoing fiscal year on the back of a healthy momentum in all main sectors. The provisional Gross Domestic Product (GDP) growth rate of 3.94pc is almost double than the official target of 2.1pc. The IMF’s projection was 2pc, while the World Bank had predicted it to be just 1.5pc. The agriculture sector maintained its last year growth rate of 2.8pc, but the industrial and services sectors surpassed the annual targets, with wide margins amid shocks to business activities from the third wave of the pandemic.

Pakistan’s per capita income in dollar terms has increased by 13.4pc, from $1,361 a year ago to $1,543 in 2020-21 due to strengthening of the rupee. The size of the economy also increased from $263 billion last year to $296 billion this year, implying an increase of $33 billion in a single year which is the highest ever. About 69pc of the growth came from the services sector and its share in the total size of the economy has increased to 61.5pc. The agricultural sector’s weight in the GDP has reduced to 18.7pc. It grew by 2.8pc, which was not only at last year’s level but also equal to the growth target. The production of major crops increased 4.7pc, far higher than the target.

The fiscal indicators show the country has left behind adverse effects of the pandemic on its economy. It can improve its growth rate to create more jobs for people. However, the biggest issue of people is high inflation, which has made their lives miserable. They have seen the hardest days of their lives in the three years of the PTI government. Improving fiscal indicators are meaningless to them. They need real relief now.