NationalVOLUME 16 ISSUE # 23

Substantial evidence of economic recovery

The economy is showing significant signs of recovery. Pakistan’s exports of goods recorded their highest level of $25.3 billion during the last fiscal year, higher than the $25.11 billion recorded in 2013-14. Pakistan’s export of goods figures during June FY21 stood at $2.7 billion, the highest for any month in the country’s history. The foreign exchange reserves have risen to $24.414 billion, the highest in its history.

The gains, however, face a significant threat from another wave of Covid-19, as the positivity rate has started rising again. In the meanwhile, the reopening of economic activity and acceleration in the vaccination process is expected to speed up the progress in the coming months. Pakistan economy has shown significant signs of economic recovery with fast resumption of economic dynamism, according to the Monthly Economic Update & Outlook June 2021 of the Ministry of Finance. “In the recent budget 2021-22, the government has taken growth-oriented initiatives and will continue to follow the positive reform momentum which would help boost the competitiveness of Pakistan’s economy and lay a strong foundation for a more robust, inclusive and sustainable recovery,” it observed.

The report said that the trade deficit together with the structural deficit in the primary income balance is largely financed by the inflow of remittances and other secondary income receipts from abroad. “Taking all these into account, the current account balance is expected to show a deficit of around $ 0.5 billion by the end of the outgoing fiscal year,” it said. The growth momentum has led to an expected strengthening of the export performance. “Exports of goods and services are expected to exceed $3 billion in June 2021. With imports expected to be about double the level of exports, the trade balance may settle at around $3 billion,” it said.

The CPI inflation decelerated to 10.9pc in May 2021, compared to 11.1pc in the previous month due to a fall in fuel, electricity and food prices. During July-May FY 2021, consumer inflation was recorded at 8.8pc compared to 10.9pc in the corresponding period a year earlier. “New price impulses may come mainly from a recent increase in international food and oil prices, following the observed strong recovery of the world economy. But due to government interventions, the pass-through into domestic price is expected to be limited,” it observed.

The fiscal consolidation efforts continue to remain on track throughout the year. The successful implementation of the measures has improved the fiscal discipline. With continuity in fiscal consolidation efforts, it is expected that the fiscal deficit for the entire fiscal year will remain within the target. For FY2022, the fiscal deficit is budgeted to be at 6.3pc of GDP. On the revenue side, FBR tax collection has increased around 18pc and surpassed the target set for 11 months of the fiscal year. It is expected that FBR would be able to improve the tax collection significantly above the level achieved last year.

Economic growth accelerated in the last quarter of the last fiscal year. It is expected to continue the recently observed positive trend in imports of goods and services. Pakistan’s exports of goods recorded their highest level of $25.3 billion during the last fiscal year, higher than the $25.11 billion recorded in 2013-14. It comes as a major relief for Pakistan which is struggling to cope with an increasing current account deficit and pressure of repaying multi-billion dollars of loans taken from international lenders. In fiscal year 2019-20, Pakistan’s exports had decreased by 6.81pc, clocking in at $21.394 billion, the Pakistan Bureau of Statistics (PBS) said.

Pakistan received record remittance inflows of up to $28 billion last year. Remittances exceeded $2 billion consecutively for 12 months, a first in the country’s history. The $26.7 billion amount received during July 2020-May 2021 was 29.4pc more than the corresponding period in the previous year. Pakistan’s foreign exchange reserves increased 4.8pc or by $1.117 billion to reach $24.414 billion in the week ended July 2, 2021, mainly on account of Chinese and World Bank loan disbursements.

The input availability for crops is satisfactory and it is expected that the agriculture sector will continue to perform well on account of continuing support of the government to the sector. Meanwhile, in July-May FY2021, foreign direct investment (FDI) was recorded at $1,751.7 million ($2,422.7 million last year) while total foreign portfolio investment registered an inflow of $ 2,172.9 million during July-May FY2021. The FDI has been hit hard globally by the pandemic. The government has provided relief to manufacturing and taken measures for ease of doing business which was duly acknowledged by the World Bank.

The economic indicators of the country are improving fast but their benefits are not reaching the common people. The indicators prove Pakistan is heading to progress and prosperity after almost three years of harsh measures. However, millions of people have lost their jobs or their incomes were slashed after the onset of the pandemic. The number of unemployed people in the country was estimated at 6.65 million during fiscal year 2020-21, compared to 5.80m the previous financial year. According to the government’s annual plan 2020-21, Pakistan has the 9th largest labour force in the world which is increasing every year. According to the Labour Force Survey 2017-18, the unemployment rate for the year 2020-21 was estimated at 9.56pc. Economic activity has begun but data is not available about people who have found work again. It appears people will have to wait for a few more years to benefit from the fruits of the economic revival. It is a long time and will not benefit the government in the next election. It will have to check prices of essentials, electricity and gas to provide meaningful relief to the people for any chance in the next polls.