NationalVOLUME 17 ISSUE # 5

Waiting for fruits of improving economy

As supply chain and health issues subdue global growth, Pakistan is expected to progress more than national and international forecasts. Its growth rate for the current fiscal year could be about 5pc, as it has successfully tackled the pandemic while its agriculture produce, exports and industry are rising. There are distinct signs of an economic recovery but its fruits have not reached the common man.

The country has also surpassed the tax collection target by Rs186 billion in the first quarter (July to September) of the current fiscal year. According to provisional information, the Federal Board of Revenue (FBR) has collected net revenue of Rs1,395 billion during the first quarter of the current financial year against the set target of Rs1,211 billion. The net collection for September 2021 shows an increase of 31.2pc over Rs408 billion collected in September last year. The government had set a challenging tax collection target of Rs5,829 billion for the year. The provisional data shows the country could easily surpass the target. “FBR tax collection continues to be strong, showing that domestic economic activity is on the upswing. In addition, efforts to boost tax collection are yielding results. It is expected that FBR tax collection would achieve its target,” the ministry of finance noted in its recent report.

Overseas Pakistanis sent the highest-ever $8 billion remittances during the first quarter of the current fiscal year, registering a growth of 12.5pc over the same period last year. The State Bank of Pakistan (SBP) reported that with inflows of $2.7b in September, workers’ remittances had continued their strong momentum and remained above $2b since June 2020. “This is the 7th consecutive month when inflows recorded around $2.7b on average,” the SBP noted. In terms of growth, remittances increased by 17pc in September compared to the same month last year, while compared with August inflows it was 0.5pc higher. The country had received record remittances of $29.4b in FY21 which helped it curtail the current account deficit.

Pakistan’s exports of services grew by about 54pc in the first two months of the current fiscal from what it was a year ago, according to the latest data released by the Pakistan Bureau of Statistics. In absolute terms, the value of exports reached $1.008 billion in July-August 2021 from $799.94m over the corresponding months of the last financial year. Services exports posted a growth of 53.64pc in August to $531.29m against $345.81m over the corresponding month of last year. On a month-on-month basis, exports increased by 11.38pc.

The World Bank expects the fiscal and monetary tightening to resume in Pakistan in FY22 in line with a 25-basis point policy rate hike in September 2021, as the government refocuses on mitigating emerging external pressures and managing long-standing fiscal challenges. In its latest report, it said the growth would depend on implementation of key structural reforms, particularly those aimed at sustaining macroeconomic stability, increasing competitiveness and improving financial viability of the energy sector. Poverty is expected to continue declining, reaching 4pc by FY23. The current account deficit is projected to widen to 2.5pc of GDP in FY23 as imports expand with higher economic growth and oil prices. Exports are also expected to grow strongly after initially tapering in FY22, as tariff reform measures gain traction supporting export competitiveness. In addition, the growth of official remittance inflows is expected to moderate after benefiting from a Covid-19 induced transition to formal channels in FY21. Despite fiscal consolidation efforts, the deficit is projected to remain high at 7pc of GDP in FY22 and widen to 7.1pc in FY23 due to pre-election spending. Implementation of critical revenue-enhancing reforms, particularly the General Sales Tax harmonisation, will support a narrowing of the fiscal deficit over time. Public debt will remain elevated in the medium-term, as will Pakistan’s exposure to debt-related shocks, it added.

Pakistan’s economy is expected to continue recovering in fiscal year 2021-22, with real GDP projected to rise by 4pc, according to the Asian Development Bank (ADB). The ADB said that the 4pc growth forecast was based on the assumption of recovery in private investment as consumer confidence and business activity improved amid the ongoing vaccination rollout and various economic stimulus measures announced in the budget for FY22. The ADB said that the 4pc growth rate was contingent on the resumption of structural reforms later in the year in an ongoing programme under the International Monetary Fund (IMF) Extended Fund Facility. The ADB said that the outlook for agriculture was encouraging in view of the government’s ambitious Agriculture Transformation Plan. Growth in the industry is forecast to improve in FY22, driven by fiscal incentives announced in the FY22 budget, a substantial rise in the budgeted development spending and strong private consumption underpinned by adequate agricultural harvests, strong remittance inflow and pickup in earnings as social restrictions are reduced and most economic activity resumes. Enhanced growth in agriculture and industry and expected improvement in domestic demand are projected to boost growth in services, strengthening their contribution to the overall growth in FY22.

According to the latest data, Pakistan has produced 27.5 million ton wheat against a target of 27.3 million tons, while production of maize was 8.9 million against the 8.5 million ton target. Pakistan also produced 87.7m ton sugarcane against 81.m ton last year, rice 8.8m ton (8.4m ton last year) and cotton 8.5m ton (7.1m ton last year). The government believes agriculture facilitation measures and the encouraging performance of major and minor crops will further ease out the inflationary pressures as it would further increase the supply of food items to the market.

Rising food prices and unemployment remain the biggest issues of Pakistanis. The government will have to check food prices urgently as people cannot wait for long for it. If the economy is improving, its fruits should also reach the common people.