NationalVOLUME 17 ISSUE # 2

Towards sustainable growth

Pakistan eyes growth of 4-5pc in the current fiscal year after registering the first recession in seven decades of its history in the pandemic year that ended in June 2020. The country grew by 3.94pc in the last fiscal year, against all odds and national and international estimates. As the pandemic has started subsiding in the country and the world, Pakistan’s economy is expected to perform even better, though it still faces serious internal and external challenges, especially after the fall of Kabul to the Taliban.

Economic indicators prove Pakistan is moving in the right direction after the adoption of a contractionary policy by the government of Prime Minister Imran Khan for over two years. Pakistan’s exports are growing steadily, though imports are also increasing. It posted the highest-ever exports for July as shipments reached $2.35 billion, up 17.3pc. In the first month of the new financial year 2021-22, exports grew by 17.3pc to $2.35 billion as compared to $2 billion in July 2020. These are the highest-ever exports for the month.

The government plans to increase exports up to $40 billion during the current financial year as it focuses on the diversification of unconventional sectors. Prime Minister’s Adviser on Commerce and Investment Razak Dawood hopes the country’s exports would reach $50 billion by following the policy of trade diversification in potential sectors and markets by the last fiscal year 2023 of the government. Export diversification, focus on non-traditional sectors and increasing exports to new markets, including Africa, are key points of the new trade policy. Pakistan has recently exported the first consignment of 5,500 4G mobile phones to the Middle East. It also aims to export 30,000,000 motorcycles annually in the coming years. The country’s Information Technology (IT) exports have also grown by 47pc and crossed $ 2 billion.

Pakistan’s revenue collection in July rose to Rs413 billion, which was an increase of over 36pc from last year’s figure, according to the Federal Board of Revenue (FBR). The data for revenue collection in the first month of the current fiscal year showed a sharp acceleration in economic activity, leading to a higher collection in sales tax and customs duty. The government, while preparing the budget for the ongoing fiscal year, had assured the International Monetary Fund (IMF) to raise Rs5.829 trillion in FY22 against Rs4.721tr collected in FY21. Until July 31, the revenue collection stood at Rs413b against the projected target of Rs342b. Compared to the collection of Rs303b in July 2020, this year’s collection posted a growth of 36pc.

Overseas Pakistanis working around the world sent $2.71 billion last month. The State Bank of Pakistan said it was the second highest level of remittances reported in July. The inflow of remittances continued with over $2b for the 14th consecutive month. “In terms of growth, remittances increased by 0.7pc over the previous month and showed a decline by 2.1pc over the same month last year,” it said. The previous financial year witnessed record inflows of remittances worth $29.4b, with growth of 27pc which supported the external account of the country. The inflow of remittances enabled the government to bridge the trade deficit as the import bill increased in every month of FY21. Till the end of 11 months of FY21, the current account was surplus with $153m but June posted a huge deficit and the year at 0.6pc current account deficit of GDP.

The International Monetary Fund (IMF) has also approved new funds for its member countries, including Pakistan, to help them combat challenges arising from the Covid-19 pandemic and put the global economy on a sustainable growth path. Under the new allocations, Pakistan received $2.8 billion, which lifted the country’s foreign currency reserves to a new record high of over $20 billion. Besides, the inflows have not only improved the country’s capacity to make payments for imports and repay foreign debt, but will also help arrest rupee depreciation against the US dollar and other major currencies. The foreign currency reserves have been on the rise for the past two years due to robust inflows of worker remittances, improvement in export earnings and growth in investment by non-resident Pakistanis through the Roshan Digital Account (RDA).

Two years ago, Pakistan’s economy was in recession mode but now it has come out of the stabilization phase and entered the growth phase. A few months ago, Pakistan’s GDP growth rate was projected at 2pc but it grew at 4pc in the previous year while in the current year it is projected to grow at 4-5pc. According to the State Bank of Pakistan, Pakistan’s economy has completed the stabilisation phase successfully and now it has entered the growth phase which is evident from the fact that the economy is now growing at over 4pc.

The widening current account deficit has been a major concern for many experts but the government believes it is sustainable. The revised Special Drawing Rights (SDR) of the International Monetary Fund (IMF) will help boost net international reserves, a key metric that takes into account reserve-related liabilities as well. The IMF allocation could not have come at a better time for Pakistan that is seeking higher economic growth in the ongoing fiscal year.

Despite the positives, inflation remains the biggest challenge to the government and people, mainly because of higher food prices, role of middlemen and imported inflation. The government should provide subsidies to people on food for a short-term solution and focus on agriculture development for a permanent solution to the problem, which has troubled them the most in the present government.