NationalVOLUME 17 ISSUE # 11

Pakistan’s remarkable growth

Exports amounted to $15.125 billion for July-December 2021, against the target of $15 billion. Exports have almost been US$3b monthly from US$2b, for the first time in the last 10 years. The Federal Board of Revenue has exceeded the first half-year target by Rs282 billion and is well on course to achieving the annual target of Rs5.829 trillion. Worker remittances continued their strong streak and have remained above $2 billion since June 2020. These are signs that Pakistan’s economy is moving in the right direction.

The achievements have also been acknowledged internationally, though disparities still exist between statistics and projections of national and international institutions. In its latest report, the finance ministry painted a rosy picture of the country’s economy estimating the average monthly growth at around 5pc during the first five months of the current fiscal year 2021-22, despite inflationary pressures and consequent tightening of policies. According to the average Monthly Economic Indicator (MEI) report, the ministry said there was demand for Pakistani exports by the trading partners despite the spread of Omicron – the new Covid-19 variant. “But we should also not ignore the impending risks including the concerns of the policymakers about the inflationary effects and the resulting policy response,” it cautioned. According to the ministry, the economy performed above expectations; GDP growth 4pc, tax collection exceeded targets, reserves improved, the current account reported lowest since 2011. “The growth was achieved when the rest of the world was encountering massive output contraction. India (-8%), UK (-10%), USA (-3.7%), Iran (-6.5%),” the ministry boasted.

Many analysts and the opposition had rubbished the ministry’s claims. However, a new report by the World Bank endorses Pakistan’s achievements. It said that Pakistan would benefit from structural reforms boosting export competitiveness and enhancing the financial viability of the power sector. The bank’s Global Economic Prospects report said growth in Pakistan surprised on the upside last year, supported by improving domestic demand, record-high remittance inflows, a narrow targeting of lockdowns, and accommodative monetary policy. It projects that growth in the South Asian region (SAR) will accelerate to 7.6pc in 2022, as pandemic-related disruptions fade, before slowing to 6pc in 2023. The World Bank has also revised growth projections for the region since June 2021, because of “better prospects in Bangladesh, India and Pakistan.” It projects Pakistan’s economy to grow by 3.4pc in the current fiscal and at 4pc in 2022-23, benefiting from structural reforms enhancing export competitiveness and improving the financial viability of the power sector. It also estimates India’s economic growth to be 8.3pc in the current fiscal year and 8.7pc in 2022-23. The report notes that India’s growth rate in the current and next fiscal years will be stronger than those of its immediate neighbors. The bank predicts Bangladesh’s growth at 6.4 and 6.9pc in 2021-22 and 2022-23, respectively, while Nepal is to grow at 3.9pc this fiscal and at 4.7pc in the next year.

Global economic growth, however, will slow down to 4.1pc this year from an estimated 5.5pc in 2021. The WB warns “Omicron-related economic disruptions could substantially reduce growth” to as low as 3.4pc. The report points out real interest rates in Pakistan dropped precipitously during 2020 and remained negative through 2021. The report notes that both Bangladesh and Pakistan saw their goods trade deficit widen to record levels on strong domestic demand and rising energy prices. Monetary policy became more accommodative in SAR as real interest rates went further negative on rising inflation expectations, but still low policy rates. The trend only reversed in Pakistan following a rapid policy rate increase. In Pakistan, however, facing fiscal pressures caused real expenditure to contract in 2021.

The report also reviews the Taliban takeover of Afghanistan in August, noting that it led to a rapid cessation of international grant support, and loss of access to overseas assets and the international financial system, driving a humanitarian and economic crisis. The crisis also disrupted food and energy imports to Afghanistan by causing a shortage of foreign exchange and dysfunction of the financial sector. “Prices for basic household goods, including food, are rising rapidly, while private sector activity has collapsed,” the report notes. “The humanitarian response is being curtailed by the collapse of the banking sector and an inability to transfer funds internationally.”

In Pakistan and Sri Lanka, long-term bond yields have rebounded rapidly in late 2021, reversing the lows reached during the pandemic. High inflation in Pakistan led to the removal of monetary accommodation. The report expects the region’s monetary policy to tighten but continue to be moderately accommodative in 2022, except in Pakistan, where high inflation led to the removal of monetary accommodation. Although SAR may continue making progress in catching up with advanced-economy per capita incomes, the pace will be slower in the forecast period than in the decade before the pandemic. Fiscal challenges in Pakistan and Sri Lanka are also having a negative impact on SAR’s growth. Per capita incomes may fall further behind advanced economies in 2021-23 in Bhutan, Nepal, Pakistan and Sri Lanka. In the subregion excluding India, output in 2023 could remain around 4pc below pre-pandemic projections.

The World Bank has also warned that climate risks are becoming more prevalent in South Asia as cyclones, floods, and droughts have become more frequent and as the costs of such events have increased. The region is one of the most vulnerable to climate-induced increases in poverty, disease, child mortality and food prices, it noted.

Though Pakistan is not prepared for adverse climate events, yet it has taken steps to improve its economy, at a time when the world was facing the pandemic. As the pandemic has eased, Pakistan expects to perform even better. However, rising prices are the biggest issue of people and the government will have to take practical measures to bring them down.