NationalVOLUME 15 ISSUE # 05

Towards stabilisation

Pakistan has started its journey towards the revival of the economy by making significant progress. Though international organisations have noted some positive developments in Pakistan, yet the local media and opposition parties continue to depict a gloomy picture of the country in the Pakistan Tehreek-i-Insaf government of Prime Minister Imran Khan.

Pakistan is moving forward on the road to economic stabilisation after controlling the spiralling current account deficit and export bill and implementing reforms to improve governance and rejuvenating competitiveness. According to the Asian Development Bank (ADB), Pakistan needs to press ahead with macroeconomic and structural reforms; revitalising public sector enterprises; improving revenue collection, energy and water security, and leveraging improved security and regional cooperation opportunities, to secure the hard won gains and promote growth. Despite forecasting Pakistan’s economy to slow down and setting the GDP growth target at 2.8 per cent for FY20, the ADB’s “Asian Development Outlook 2019 Update” said the agriculture sector would recover from weather-induced contraction this year, with major incentives in the agriculture support package of the government included in the budget for FY20.

Most Pakistani news channels and newspapers screamed of the ADB forecast on Pakistan’s slowing down economy and rising inflation. “Pakistan’s economy in fiscal year 2019, which ended on 30 June, is showing signs of recovery as the government’s fiscal consolidation and austerity measures to address the structural weaknesses started to take effect,” the ADB had also noted, but it was largely ignored by most media outlets. There are remarkable signs of recovery in the current account deficit and foreign exchange reserves, but nobody is willing to give the government credit for it.

It is a fact that at the 2.8pc growth rate, Pakistan will be the slowest growing economy in a bloc of eight South Asian nations. Like the last fiscal year, Bangladesh’s economy will be fastest-growing at a rate of 8pc, followed by India that is projected to grow at 7.2pc and Maldives and Nepal at 6.3pc. Even war-torn Afghanistan is projected to grow at 3.5pc in this fiscal year. But Pakistan’s economy was already the slowest in the region when the PTI had come to power last year.

Commenting on the report, ADB’s Country Director for Pakistan Xiaohong Yang said, “Pakistan needs to continue efforts to stabilise and protect the economy against external risks, rising global prices, current account deficit, rising debt servicing, and continued losses of public sector enterprise.” Noting Pakistan’s success on the external front, the ADB admitted that its trade deficit has shrunk by nearly half in July, the first month of FY20, from $3.4b a year earlier to $1.8b. With further narrowing of the trade deficit and a continued positive trend in workers’ remittances, the current account deficit is projected to narrow further to 2.8pc of GDP in the ongoing fiscal year.

The ADB report says import payments will remain subdued, reflecting weak economic activity and the pass-through of past rupee depreciation against dollar. The real effective exchange rate is now thought to be near equilibrium, and a lower and more stable rupee is expected to improve export competitiveness. Foreign capital inflows are likely to increase whereas foreign direct investment should revive as investors’ confidence restores with implementation of IMF’s stabilisation and reform programme. This should also help bring additional finance from multilateral institutions and other international partners.

In another significant development, Pakistan has been ranked among the World Bank’s list of “Top-20 improvers in Doing Business 2020.” According to the World Bank, Pakistan has improved in six areas measured by “Doing Business”, which are: starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. Pakistan’s improvement in the six areas is a reflection of the country’s development of an ambitious reform strategy, including the establishment of a national secretariat and prime minister’s reform steering committee, it noted. The World Bank stated that Pakistan had made the process of starting a business easier by “expanding procedures available through the online one-stop shop.” Along with improvements in property registration, the process of obtaining a construction permit has also been made easier. This is because the Sindh Building and Control Authority (SBCA) and the Lahore Development Authority (LDA) have streamlined approval workflows and improved the operational efficiency of their one-stop shops, it observed.

Pakistan has also made a remarkable achievement in revenue collection. It has almost doubled its revenue target for the current fiscal year from the previous year and it almost achieved it but it is the shortfall that gets most of the attention of the media and opposition leaders. It is right that the Federal Board of Revenue (FBR) has missed its revenue collection target for the first quarter of the current fiscal year by a margin of Rs111 billion against the target of Rs1,071b, but it also a reality that the collection was more than 25pc than the first quarter of the last fiscal year.

According to the government, the FBR has managed to provisionally collect Rs960b in the first quarter of the current fiscal year against the target of Rs1,071b. It has also paid past refunds worth Rs15b during the first quarter as well. In this way, it has achieved almost 90pc of the target. The FBR has also received 438,564 tax returns until September 30, against 408,381 returns received over the corresponding month last year, showing an increase of 7.4pc. Last year, the FBR had received 2.6 million returns after granting eight extensions. It has set a target of 5m returns in the current fiscal year.

It will be wrong to say that the government has not made any headway on the economy in its first year in power. Despite challenges, signs of relief are visible and will start bearing fruit to the common people in coming months and years.