InternationalVOLUME 16 ISSUE # 15

Revised forecasts

International financial institutions have revised their forecasts upward for Pakistan for the current fiscal year after bleak projections.

Though the current account deficit has started increasing after remaining positive in the first seven months of the current year, mainly due to surging imports, yet it is under control. Pakistan received workers’ remittances worth $2.27 billion in January, 19pc higher than $1.90 billion in the same month last year. These are encouraging signs of economic revival, which will benefit the common people.

In their latest reports, the International Monetary Fund (IMF) and the World Bank (WB) have changed their projections for Pakistan’s economy. The IMF in April and the WB in May 2020 had scaled down Pakistan’s growth projections for 2020-21 – from positive 2 percent and negative 0.2 percent respectively to one percent and 0.5 percent. Pakistan’s economy, which in the last fiscal year contracted by 0.4pc, is projected to grow by 1pc in this fiscal year 2020-21, the IMF said.

In its latest report, the Asian Development Bank forecast broad economic recovery in Pakistan with 2 percent GDP growth in fiscal year 2021, with improved economic sentiment. In its Asian Development Outlook, the ADB said, “Broad economic recovery is projected for fiscal year 2021, with GDP growth estimated to rebound to 2pc, lower than forecast in 2020. This forecast assumes that the COVID-19 impact will subside, allowing global conditions to normalize and economic sentiment to improve.” The prospect of growth in industry is projected to improve in fiscal year 2021, led predominantly by construction and small-scale manufacturing. In addition to the normalization of global economic conditions, improved market sentiment, and stronger business and consumer confidence expected with the easing of the pandemic, a relatively low policy rate should facilitate the financing of industrial initiatives. The ADB projected that services should also contribute to growth, spurred by improved growth in agriculture and industry, coupled with an expected improvement in domestic demand overall.

Inflation is projected to slow to 7.5pc in the ongoing fiscal year, lower than the forecast in 2020, driven by the expected economic recovery, but tempered by expenditure reform, and the government’s decision to stop borrowing from the central bank, which should help slow growth in the money supply to 14.2pc in fiscal year 2021. An upside risk to the inflation forecast is global oil prices rising higher than currently projected. A greater risk would be electricity tariff increases to improve cost recovery in the industry and help bring down government subsidies. The fiscal deficit is forecast to decline to the equivalent of 7pc of GDP in FY2021. Revenue is projected to increase, reflecting ambitious revenue-mobilization targets following initiatives to withdraw tax exemptions, rationalize tax concessions, and broaden the tax base.

The current account deficit is anticipated to remain contained at the equivalent of 2.4pc of GDP in fiscal year 2021, unchanged from the ADB 2020 forecast and exports are expected to grow with the likely pickup in economic activity in Pakistan’s major trade partners, and as Pakistan’s exports become more competitive due to government measures to reduce business costs. Imports will rebound from a low base in fiscal year 2020 and, more importantly, in response to economic recovery in the current fiscal year-and despite higher tariffs on imports of nonessential goods.

Pakistan recorded a current account deficit for the second successive month in January at $229 million, mainly due to increase in import of food items, industrial raw material and machinery. The growth in imports, mainly of industrial goods and machinery, indicates expansion in businesses and growth in economic activities in the country as the economy largely depends on them. The current account deficit was 55pc lower in January compared to the same month last year and 65pc lower compared to the previous month of December 2020, according to the State Bank of Pakistan (SBP).

The current account remained surplus at $912 million in the first seven months of fiscal year 2020-21 compared to a deficit of $2.54 billion in the same period of the previous year, according to the central bank. The bank has projected a current account deficit of 0.5-1.5pc of gross domestic product (GDP) for the current fiscal year.

The country has received workers’ remittances worth $2.27 billion in January 2021, which are 19pc higher compared to $1.90 billion in the same month of the last year. January was the eighth successive month in which Pakistan received over $2 billion remittances. In the first seven months of the current fiscal year, inflows grew 24pc to $16.47 billion compared to $13.27 billion in the same period last year. Historical trends suggest the remittances peak around Ramazan and Eid festivals every year in Pakistan. The trend of inflows suggests that remittances may total at around $27-28 billion in the current fiscal year. The SBP has also revised up its projection for receipts at around $24-25 billion for FY21 in January from $23-24 billion earlier. The central bank said the remittances maintained uptrend due to the government and its own efforts to attract inflows through official channels.

Experts say Pakistan’s economic progress will be better than international and national estimates. The ADB report indicates that inflation will decrease in the coming months. Rising prices are the biggest problem of the common man. If the government solves it, the opposition will have no justification for its movement.