NationalVOLUME 16 ISSUE # 11

Shaking off pandemic blues

Pakistan’s exports have been climbing constantly while its South Asian rivals India and Bangladesh showed negative growth in recent months. The country’s remittances have been above $2b for the sixth consecutive month in December 2020. It hopes to put the International Monetary Fund’s fiscal support programme back on track, which will improve its economic outlook.

The new indicators point out that Pakistan has left behind the adverse effects of the pandemic and its economy is about to take off. Remittances from overseas Pakistanis in December 2020 rose by 16.2pc year-on-year to $2.436 billion, compared to $2.097b in December 2019, crossing the $2b mark for the seventh consecutive month, according to the latest data released by the State Bank of Pakistan (SBP). For the first time in Pakistan’s history, remittances have been above $2b for six consecutive months. On a cumulative basis, inflows during six months of the current financial year have increased by 24.9pc to $14.2b, compared to $11.372b during the same period last year.

Pakistan’s exports increased for a second straight month in December. According to the Pakistan Bureau of Statistics, exports increased by 8.32pc from $2 billion in November 2019 to $2.17 billion in November 2020. The December 2020 figure of $2.35 billion was 18.3pc higher than the previous year’s total of $1.98 billion. On the other hand, India’s exports decreased by 9.07pc in November and 0.80pc in December. According to India’s Commerce Ministry, merchandise exports slipped from $25.77 billion in November 2019 to $23.43 billion in November 2020. The country’s exports in April-November 2020 stood at $173.49 billion, falling 17.84pc from $211.17 billion during the same period in 2019. In December 2020, India’s exports totaled $26.89 billion, a marginal decrease of 0.80pc from the previous year’s figure of $27.11 billion. The country’s total exports in April-December 2020 amounted to $200.55 billion, marking a decrease of 15.8pc from $238.27 billion during the same period in 2019. The Bangladesh economy also suffered as its exports recorded a nominal increase of 0.76pc to reach $3.07 billion in November 2020 from $3.05 billion the previous year, according to data from the Export Promotion Bureau. Its overall exports in July-November 2020 stood at $15.92 billion, marking a 0.93pc rise from $15.77 billion during the same period in 2019.

The State Bank of Pakistan (SPB) has projected the real GDP growth in the range of 1.5-2.5pc for FY21 but said risks attached with the Covid-19 could hurt the growth. However, Pakistan is about to see off the second wave, which was not as severe as the first one. It is hoped Pakistan would perform better than national and international estimates. According to the World Bank, Pakistan’s growth rate could be 0.5pc for financial year 2020-21. In a recent report, it said Pakistan’s growth rate could be only 0.5pc in FY2021 against the government’s target of 2.1pc. “The services sector in Pakistan will be affected and the economy could grow at a rate of 1.3pc in the next two years while the country’s poor will be affected by the low growth rate. Deferred loans brought relief to the developing countries but Pakistan needs stable economic policies in the long term. After the pandemic, the global economic growth rate is expected to be 4pc while it will be lower in South Asia at around 3.3pc. Unemployment is also predicted to increase as a direct result of the coronavirus,” it noted. It is clear that the World Bank had projected a low growth rate in Pakistan at a time when the country was facing the second wave.

On the other hand, the SBP projected real GDP growth to be in the range of 1.5 to 2.5pc in FY21. It is based on the current trends of economic activity, according to the first quarterly report of the SBP. The latest projections suggest that Pakistan’s fiscal deficit remains on track to meet the annual target of 7pc of GDP. The higher year-on-year fiscal deficit led to an increase in the stock of public debt while the buildup of government deposits was relatively contained compared to 1QFY20, which contributed to a lower pace of debt accumulation this year. In the agriculture sector, rice, sugarcane, and maize surpassed production targets during the Kharif season. The area for the competing cotton crop fell to its lowest level since FY82, and its yield was adversely affected by severe monsoon rains, particularly in Sindh, and pest attacks.

In its 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 was projected for fiscal year 2021, with GDP growth estimated to rebound to 2pc, lower than forecast in 2020. This forecast assumes that the pandemic impact will subside by the end of the second quarter of the fiscal year, allowing global conditions to normalise 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 normalisation of global economic conditions, improved market sentiment, and stronger business and consumer confidence expected with the easing of the pandemic by the end of the first half of fiscal year 2021, 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.

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.

Experts say Pakistan’s 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 lose justification for its movement.