NationalVOLUME 16 ISSUE # 06

Signs of early revival

International financial institutions have revised their forecasts upward for Pakistan for the current fiscal year after bleak forecasts. The current account balance remains in surplus for the third month in a row in September, creating history with a 17-year high surplus in the first quarter. Workers’ remittances have soared by 31pc in the quarter. These are encouraging signs of economic revival, which will ultimately 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 by the end of 2020-the end of the second quarter of fiscal year-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 COVID-19 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. Inflation is projected to slow to 7.5pc in the ongoing fiscal year, lower than the April 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 currently under consideration 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’s current account balance remained in surplus for the third month in a row at $73 million in September, creating history with a 17-year high surplus in the July-September quarter. “Great news for Pakistan. We are headed in the right direction finally. The current account was in surplus of $73 million during September, bringing surplus for the first quarter to $792 million compared to a deficit of $1,492 million during the same time last year. Exports grew 29pc and remittances grew 9pc over the previous month (August),” Prime Minister Imran Khan stated on his official Twitter handle.

The State Bank of Pakistan (SBP) reported that workers’ remittances had soared 31pc to $7.15 billion in the July-September quarter compared to $5.45 billion in the same quarter last year. Pakistan received healthy inflows of over $2 billion on account of workers’ remittances for the fourth consecutive month in September, which was contrary to a drop of 12-20pc feared by international financial institutions for the July-December period due to Covid-19. Pakistan received remittances in a range of $1.78-1.90 billion per month in the past five months – January-May 2020, according to the central bank. The remittances have increased despite 200,000-250,000 Pakistanis having lost jobs abroad during the pandemic. If Pakistan sustains the growth in remittances, it can receive an additional $7-8 billion in the current fiscal year, which will be higher than the IMF loan programme of $6 billion. Pakistan received record high remittances of $23.1 billion in the previous fiscal year 2019-20. Overseas Pakistanis sent the highest remittances worth $666 million in September from Saudi Arabia compared to $516 million in the same month last year, with a growth of 29pc. Remittances grew 12pc to $473 million from the United Arab Emirates (UAE) compared to $422 million in the same month last year. Remittances from the US touched $180 million, up 54pc than $117 million, and $289 million from the UK, up 63pc than $177 million last year.

The deficit of trade in services halved to $539 million in the quarter compared to $1.09 billion in the corresponding quarter last year. Import of goods decreased almost 4pc to $10.61 billion compared to $11.03 billion. Export of goods dropped 10.5pc to $5.36 billion compared to $5.98 billion. The rupee has also strengthened against the dollar, by more than Rs4 to the greenback in recent weeks, and considering that each rupee gain reduces the country’s interest payments plus principal on external debt by around Rs100 billion, it may have reduced public debt by around Rs400 billion.

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 have no justification for its movement.