Economic Times Of Pakistan
SBP reserves decline $266m to $10.1bn
The foreign exchange reserves held by the central bank decreased 2.57 percent on a weekly basis, according to data released by the State Bank of Pakistan (SBP) on Thursday.
On June 5, the foreign currency reserves held by the SBP were recorded at $10,095.8 million, down $266 million compared with $10,362.1 million in the previous week.
According to the central bank, the decrease was attributed to the government’s external debt repayments of $301 million.
Overall, liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $16,705.3 million. Net reserves held by banks amounted to $6,609.5 million.
Pakistan received the first loan tranche of $991.4 million from the International Monetary Fund (IMF) on July 9 last year, which helped bolster the reserves.
In late December, the IMF released the second loan tranche of around $454 million. Previously, the reserves jumped on account of $2.5 billion in inflows from China.
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Govt gives Rs1.15tr in tax break
In an alarming development, the government doled out a record Rs1.15 trillion in tax exemptions to the affluent people and under international commitments in the outgoing fiscal year, breaking its own one-year-old record, showed the Pakistan Economic Survey 2019-20.
Cumulatively, the PTI government has given Rs2.12 trillion in tax exemptions during its first two years in power – an amount that is sufficient to build two Mainline One (ML-I) projects of the China-Pakistan Economic Corridor (CPEC). The estimated cost of the ML-1 project is Rs1.1 trillion or $7.2 billion and the government has given Rs2.2 trillion in tax concessions.
The Federal Board of Revenue (FBR) has estimated the cost of what it called tax expenditures at Rs1.15 trillion on account of income tax, sales tax and customs duty concessions in this fiscal year, according to the survey.
It was the highest amount of concessions given in any fiscal year. It was also higher by Rs177.6 billion or 18.2 percent compared with the concessions given in the previous fiscal year when the PTI government gave Rs972.4 billion in exemptions.
Withdrawing the tax concessions, largely availed by the affluent, has remained an integral part of the International Monetary Fund (IMF) programmes. In the last IMF programme, which ended in September 2016, the federal government claimed to have withdrawn Rs347 billion worth of Statutory Regulatory Orders (SROs). Yet, the cost of exemptions is soaring every year.
As against Rs141.6 billion worth of income tax exemptions given in the last fiscal year, the FBR has estimated cost of income tax exemptions this year at Rs378 billion, according to the survey.
There was an increase of 167 percent or Rs236.4 billion in the cost of income tax exemptions, primarily because of tax breaks given to the powerful industrialists, government functionaries and certain entities. The Rs378 billion exemptions were equal to nearly one-third of the total cost of exemptions given in the current fiscal year.
Unlike the past, when the government had clearly named the beneficiary sectors, this time the government has vaguely explained these sectors. An amount of Rs36.4 billion income tax exemptions were given in allowances, Rs104.5 billion in tax credit exemptions and Rs212 billion in exemption from total income.
An amount of Rs3 billion were lost due to reduction in tax rates, and another Rs3 billion on account of exemptions from “specific provisions”. Meanwhile, Rs18.9 billion worth income tax exemptions from government income were given.
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Thermal has largest share in energy mix
The installed electricity generation capacity in Pakistan reached 35,972 megawatts by the end of April 2020 as compared to 33,452MW in April 2019, a growth of 7.5 percent, reveals Pakistan Economic Survey 2019-20.
Currently, thermal electricity has the largest share in power generation. Gas and re-gasified liquefied natural gas (RLNG) are among cheaper sources of energy.
A significant growth in RLNG consumption in energy mix has helped improve supply to various power plants like Bhikki, Haveli Bahadur Shah, Balloki, Halmore, Orient, Rousch, Kapco, Saif and Sapphire. Moreover, RLNG is being supplied to fertiliser plants, industrial and transport sectors as well.
According to the survey, the share of hydroelectric power in total power generation increased from 25.8 percent in April 2019 to 30.9 percent by April 2020. However, the share of thermal power dropped from 63 percent to 58.4 percent.
The share of nuclear electricity went up from 3 percent to 8.2 percent whereas the share of renewable energy dropped from 8.2 percent to 2.4 percent.
Coal is a massive energy resource that exists in the country and further exploration in different areas is in progress but only a fraction of it is being utilised.
Many coal-mining and power generation projects are in the process of development in Thar coal field. Imported coal power plants may also be required to consider mixing with Thar coal. A number of plants on imported coal have now started functioning like the one in Sahiwal, two at Port Qasim and one plant on locally produced coal has also started running in Thar.
The volume of import cargo stood at 21.878 million tonnes in Jul-Dec 2019 against 20.125 million tonnes in the corresponding period of previous year, showing an increase of 8.7 percent. Major non-containerised imports were coal, LNG, petroleum products, chemicals, palm oil and grain. Coal was the largest imported cargo that represented over 34 percent of the total import cargo, said the survey.
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Corrective initiatives jolt Pakistan’s manufacturing sector
The much-needed corrective measures taken to fix the faltering economy; rupee depreciation, hike in interest rate, raising electricity prices, and lately the lockdown, have badly hit the large-scale manufacturing (LSM) sector with major contraction in automobile, textile, petroleum, wood and electronic production in the ongoing fiscal year.
The policy measures added fuel to drive LSM downwards for the second consecutive year. The sector declined by 5.4 percent in the first nine months (July-March) FY20 compared to decrease of 2.34 percent in the same period last year, according to Pakistan Economic Survey FY2019-20 launched on Thursday.
The last three months of the current fiscal year ending June 30 were projected to create havoc in the sector and sub-sectors; as lockdown imposed to contain the coronavirus toned down demand next to nil for goods like cars, petrol, cement, steel and electronics. In addition to the policy measures, the expensive industrial inputs, implementation of stabilisation and revenue measures like increase in the rate of taxes on imports and lower domestic demand remained the key reasons behind the subdued performance.
Furthermore, instability of rupee against the US dollar fuelled the already gloomy performance. Rupee depreciated by 3.9 percent, while the benchmark interest rate stood at an eight-year high of 13.25 percent during July-March FY20.
“When slight improvement was started to be seen in export-oriented sectors and construction allied industries ie cement, thus a gradual economic recovery was expected but unforeseen Covid-19 crisis brought economic activity to a near-halt, both domestically and globally,” the survey said.
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Pakistan’s agri sector grows 2.7pc
The agriculture sector – the backbone of national economy and a major source of employment – recorded a significant growth of 2.67 percent in the outgoing fiscal year 2019-20 compared to a poor 0.58 percent growth in FY19.
The agriculture sector has provided some relief for Pakistan’s economy, which has registered a negative growth for the first time in 68 years. Rice production increased 2.9 percent to 7.410 million tons and maize crop rose 6 percent to 7.236 million tons. Cotton harvest fell 6.9 percent to 9.178 million bales and sugarcane production dropped 0.4 percent to 66.88 million tons.
Meanwhile, the production of wheat – being the most important crop – recorded a growth of 2.5 percent to 24.946 million tons.
However, experts term the agri-growth overestimated, saying the government may revise it later. “Agriculture growth looks overestimated,” said Syed Atif Zafar, Director Research and Chief Economist at Topline Securities.
“This is perhaps for the first time Pakistan is reporting GDP growth in the Economic Survey based on full-year estimates compared to the previous practice of estimates based on nine-month data as the impact of Covid-19 is too significant to be ignored,” he said.
Pakistan’s gross domestic product (GDP) – the size of national economy – is expected to contract for the first time since 1952.
The agriculture sector, which contributes 19.3 percent to the GDP, recorded a year-on-year growth of 2.67 percent in FY20, lower than the target of 3.5 percent, but higher than last year’s growth of 0.58 percent and preceding five-year average of 1.8 percent.
“Looking at the breakdown and their respective weights, we expect the government to revise down agriculture growth for FY20,” said the analyst in a report.
Nonetheless, according to the survey, other crops showed a growth of 4.57 percent mainly due to increase in the production of pulses, oilseeds and vegetables. Cotton ginning declined 4.61 percent due to decrease in the production of cotton crop. Overall, the crops sector recorded a notable growth of 2.98 percent owing to a 2.9 percent increase in the harvest of important crops.
The livestock sector achieved a growth of 2.58 percent. Meanwhile, the fishing sector grew 0.6 percent whereas the forestry sector jumped up 2.29 percent.
In 2019-20, total availability of water for Kharif (summer) crops was recorded at 65.2 million acre feet (maf), an increase of 9.4 percent compared to 59.6 maf in 2018-19.
In the Rabi season 2019-20, total water availability was recorded at 29.2 maf, an increase of 17.7 percent over Rabi 2018-19 but 19.8 percent less than the normal availability of 36.4 maf.
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Over 57pc to suffer COVID-19 financial squeeze
Around 57 percent of the country’s population is economically vulnerable to the effects of the coronavirus pandemic and between 12.5 million to 19.1 million jobs are at stake because of the partial and complete lockdowns imposed to stem the spread of the disease, according to the Economic Survey of Pakistan 2019-20 released on Thursday.
The government also expects a second wave of Covid-19 that “could further threaten macroeconomic stability and socio-economic outcomes”.
The higher public debt, which is currently estimated at 88 percent, would be “problematic” and financing for development projects might become scarce. Revenue would be difficult to increase and the expenditure demand might be immense.
The government has not given any exact figure about the economic losses suffered because of the pandemic in a special chapter on Covid-19 that is part of the survey, but Finance Adviser Dr Abdul Hafeez Shaikh at a news conference put it at “over Rs3 trillion”.
“It is very difficult to say with certainty but Pakistan’s GDP that was projected to grow over 3 percent contracted to 0.4 percent and we have effectively lost 3.5 percent of the GDP due to coronavirus,” he said while releasing the survey.
“Exports have already dipped while foreign remittances are also going to get affected in the coming months,” he added.
The survey report has discussed the socio-economic assessment in light of economic, social and food security related vulnerabilities.
“An estimated 56.6 percent of the population is socio-economically vulnerable to the Covid-19 crisis,” the report read.
Women and children, especially those from more disadvantaged households and home-based workers, will be among the worst hit.
Shaikh pinned the blame for all the economic miseries on the spread of the disease.
However, the finance adviser ducked a question about the planning ministry’s assessment that the “prospects for economic growth even before the emergence of the Covid-19 phenomenon were eclipsed by higher inflation and interest rates, negative large-scale manufacturing growth, weaker exports, sluggish resource mobilisation, uncertainty surrounding hot money inflows and, above all, tough International Monetary Fund (IMF) programme–related conditions”.
The special Covid-19 chapter stated that before the outbreak, the economy was projected to grow by 3.3 percent and due to the pandemic it contracted 0.4 percent this year. The investment-to-GDP ratio that had been projected at 15.6 percent of the GDP would remain at 15.4 percent due to the disease. The public investment has remained unaffected at 3.8 percent of the GDP in both the scenarios during this fiscal year.
According to the report, the industrial and services sectors were affected the most.
“There is likely to be a big fall in private investment in coming months when faced with industrial closures and the obvious reluctance of the banks to offer loans”, the report read.
“The FBR’s tax collection that was expected to remain at Rs4.8 trillion before Covid-19 would remain below Rs3.9 trillion,” said Shaikh. The official target given by the IMF was Rs5.5 trillion.