Before the Covid-19 infections commenced to be detected in Pakistan, the country’s economy the economist of Pakistan revealed, had clearly moved out of the crisis-management mode. The current account statistics were getting better every month, and foreign exchange reserves were shoring up progressively. Furthermore over the upcoming 24 months, headline inflation was predicted to revert to the medium-term target of 5 to 7 percent. Nevertheless, attaining this year’s real GDP growth rate target of 4.0 percent was improbable, as the agriculture sector’s condition was lower than predictions.
According to the officials of Pakistan, significantly the current account deficit has shrunk, the primary budget balance has moved into surplus, and core inflation has lately eased and even foreign exchange reserves have boosted markedly. Furthermore, export-led manufacturing has gained additional traction and signs of a pickup in construction activities have emerged presently, suggesting the economy is on the path of slow recovery. Also, presentation under the ongoing International Monetary Fund (IMF) programme remains strong, and foreign rating agencies for Pakistan, sustained a stable outlook. More recently IMF has accepted to give a 1-year relief to Islamabad, keep in in view the country’s struggle against the coronavirus pandemic.
The experts revealed that during the past one year, these gains mainly reflect the cumulative effect of stabilization and regulatory measures taken. For instance, the reduction in the current account deficit to a 6-year low level in H1-FY2020 was facilitated through demand management measures, transition to a market-based exchange rate system, and regulatory attempts to curb non-essential imports and to raise the inflow of workers’ remittances by formal channels.
The improvement in the fiscal position similarly, also reflects the impact of tax and non-tax measures to raise the revenue stream, and an important restraint on expenditures through the Government of Pakistan. In this stabilization process, local production and retail trade activities were adversely affected. While the economic activity has commenced to show signs of a recovery, it is significant to consolidate gains on stability front. More specifically towards sustainable growth, progress in some areas stays susceptible and more work is needed to put the economy on a firm path. In particular, fall in the current account deficit has mostly stemmed from a reduction in the import bill; whereas, export receipts have yet to contribute significantly to this enhancement. Moreover, the economists also revealed that the outcome for foreign direct investment (FDI) inflow was also not encouraging as barring the telecommunication sector, inflows were about at the same level as previous year. This dynamic requires to be addressed because FDI is intrinsically connected to Pakistan’s ability to enlarge its manufacturing and export base in the medium term.
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In the same vein the experts also urged, the primary budget surplus on the back of a substantial growth in revenues is encouraging. Domestic tax collection increased to its highest since H1-FY2012, as the FBR reversed earlier concessions, resorted to new levies and also advantaged from price raises mainly in the energy sector. Nevertheless, the overall revenue targets were missed, mainly because of significant compression in Pakistan’s imports, which shares heavily to revenue collection. On the other hand mainly in the agriculture sector, the real sector too has its long-standing problems. For instance, crop yields are low and water obtainability is constrained. With additional challenges such as climate change emerging, agriculture production appears less resilient to externalities. The fall in cotton production is therefore set to undermine the agriculture condition in FY2020, despite encouraging prospects for wheat crop and livestock.
According to the top government officials, core inflation in both urban and rural areas has remained stable during H1-FY2020, reflecting the impact of stabilization measures. However, easing of underlying inflationary pressures was not enough to arrest the climbing headline inflation, which was largely led by food inflation. It is also recorded that the policymakers, nonetheless, anticipated only a temporary impact of these food supply shocks on the future inflation path and kept the policy rate unchanged in both the September- and November-2019 decisions of the Monetary Policy Committee. Thus, to make the stabilization successful on a sustainable basis, current efforts must be complemented with further structural reforms.
The economists predicted that unluckily Pakistan’s initial economic losses in dissimilar economic sectors have been predicted at Rs1.3 trillion in the present scenario of coronavirus outbreak. These losses are going to be incurred on account of drop in the GDP growth rate due to reduction in the performance of different economic indicators including FBR’s revenue loss and disruption in food as well. However, the preliminary assessment of losses done through Asian Development Bank (ADB) and shared with the Government of Pakistan concerned authorities reached at $5 billion as it is said to be less than the expected actual losses because there was no basis for it. Furthermore, the economists are still busy to calculate the exact losses going to be faced by the Government of Pakistan. Sources recorded that the Planning Commission estimated that the size of Pakistan’s GDP reached at Rs44 trillion and one/fourth reached at Rs11 trillion, so the disruption reasoned through this virus was estimated to cause at least 10 percent losses in the last quarter (April-June) that would reach at Rs1.1 trillion at least. It is also recorded that the lockdown of Karachi was going to reason main revenue losses and they were assessing that if it persisted till June 2020, then the tax losses will go up to Rs380 billion.