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Unpredictable export growth in pandemic

The numbers on the trade pattern published by the Pakistan Bureau of Statistics (PBS) for July 2020 indicate a significant reversal of the trend in prior months.

Exports surpassed $2 billion, a month-on-month increase of 25.1 percent and year-on-year growth of 6.1 percent. On the other hand, imports decreased slightly, month-on-month and year-on-year. The balance of trade continued its downward trend, receding by 19.9 percent month-on-month and 7.7 percent year-on-year.

Pakistan has recovered from the earlier plunge in exports experienced in late March 2020. Exports in February 2020 were $2.1 billion, the highest level reported for FY20. Interestingly, imports did increase 30 percent in June 2020 to $3.7 billion over the value reported in May 2020. They maintained this level in July 2020.

On the other hand, India’s exports recovered sharply in May 2020 from the sharp fall in April but since then the trajectory has been flatter.

Data shows India’s exports stood at $19.1 billion in May 2020, up from $10.4 billion in April. Exports in July 2020 were $23.6 billion. Exports had peaked at $27.7 billion in February 2020.

Imports into India were calculated at $41.1 billion in January 2020, which decreased to $17.1 billion in April 2020 and recovered to $28.5 billion in July 2020.

Similarly, according to data extracted from Bangladesh’s Export Promotion Bureau, a decline of 16.9 percent was reported in its total exports from July 2019 to June 2020 over the same period of previous year. Total exports met only 74 percent of the target. Exports of readymade garments were a major casualty.

Pakistan’s public debt-to-GDP ratio raises to 87.2pc

The country’s public debt-to-GDP ratio increased to 87.2 percent in June this year, the finance ministry said on Saturday.

The ministry maintained that the country’s public debt was sustainable and its capacity to repay also adequate.

The total public debt, as of June 30, 2020, has increased to Rs36.3 trillion or 87 percent of the GDP.

There was an addition of Rs11.35 trillion or 45 percent in the total public debt in the past two years — more than what the previous government had accumulated in its five-year term.

In a statement, the ministry said the government planned to run primary surplus, maintain low and stable inflation and promote measures that supported higher long-term economic growth.

Quoting the State Bank’s figures, the ministry said the total public debt-to-GDP ratio had increased from 86.1percent in June 2019 to 87.2 percent in June 2020.

This figure had declined to around 84 percent in December 2019 due to an increase in the collection of taxes by the Federal Board of Revenue (FBR) and strict control on current expenditure.

“Prudent economic policies had resulted in the posting of a primary surplus in February 2020 which was after a gap of many years,” the statement read.

“However, the Covid-19 pandemic adversely impacted the economy and slowed down the government’s programmes focused on reforms.”

The coronavirus outbreak resulted in a reduction in revenue and an increase in expenditures, decline in domestic and global demand, lower tourism and business travel, trade and production linkages and supply disruptions, etc.

“Resultantly, the debt-to-GDP ratio has increased due to the sharp decline in growth and the increase in the budget deficit primarily due to Covid-19 related expenditures during the last four months of the fiscal year 2020,” the ministry maintained.

According to the Global Economic Prospects report published by the World Bank Group in June 2020, Pakistan’s economy has shown greater resilience than its peer in South Asia.

“In view of the foregoing it is expected that the government will be able to bring back the debt-to-GDP ratio on a clear downward path over the medium term through increase in revenues and fiscal discipline,” the statement read.

When the PML-N government left the corridors of power, the total public debt was Rs24.95 trillion or equal to 72.5 percent of GDP. In just two years, it has surged to 87 percent of GDP, which is unsustainable and carries huge risks for the economy and the country’s foreign policy.

According to finance ministry spokesperson Mohsin Chandna, about 42 percent of the additional debt in the past two years was due to debt servicing expenses and another 31 percent because of currency devaluation.

Independent experts have criticised the PTI government for keeping the interest rate artificially high at 13.25 percent and devaluing the currency more than the requirements – the two factors that had now contributed to skyrocketing the public debt.

Week-on-week: SPI declines by 0.14pc

The Sensitive Price Indicator (SPI) for the week ended August 27, 2020 registered a decrease of 0.14 percent for the combined income group, going down from 135.22 points during the week ended August 20, 2020 to 135.03 points in the week under review.

The SPI for the combined income group rose 8.39 percent compared to the corresponding week of the previous year. The SPI for the lowest income group decreased by 0.08 percent compared to the previous week. The index for the group stood at 141.50 points against 141.62 points in the previous week, according to provisional figures released by the Pakistan Bureau of Statistics (PBS).

During the week, average prices of 12 items rose in a selected basket of goods, prices of 11 items fell and rates of the remaining 28 goods recorded no change.

Bank borrowings jump amid COVID-19 pandemic

The coronavirus pandemic has continued to reshape the economy and change priorities around the world. The latest banks’ statistics suggest some of the businesses stayed optimistic despite the ongoing Covid-19 challenges, while majority appeared cautious.

People and businesses have ramped up investment in gold, shares at the stock market, hospitals, pharmaceuticals, readymade garment and fertiliser making in Pakistan during July 2020, according to the State Bank of Pakistan (SBP).

Individuals also borrowed more to buy or invest in housing, owning a car and increase personal loans.

However, majority of the businesses in manufacturing, agriculture and real estate sectors including major agriculture crops like wheat, cotton, rice, sugarcane, cotton, textiles and oil and gas exploration sectors partially paid back debt owed to banks apparently due to a drop in the demand for relevant products since Covid-19 outbreak or because of this being off-season for them, according to background discussion with experts.

 

People opted to park savings in gold and shares at the Pakistan Stock Exchange (PSX) during the month of July as they appeared optimistic to win against Covid-19.

They borrowed a fresh Rs11.27 billion from banks to invest in securities and shares of the private sector during July 2020, as the total bank borrowing increased to Rs225.29 billion in the month under review compared to Rs214.02 billion in the previous month of June 2020, according to the central bank.

PSX benchmark KSE-100 Index has recovered around 12,500 points, or 46 percent, in the past five-month to close at 39,622 points on August 21 (Friday). The Covid-19 outbreak had pushed the index 16,000 points, or 37 percent, lower to 27,000 points in the last week of March. The significant recovery in infection cases and massive 625 basis points cut in the benchmark interest rate made investment at the market profitable, experts remarked.

Hospitals and medicine manufacturers invested more apparently in the wake of the global health crisis of Covid-19 and other ongoing facilities.

Economy: some issues amidst hope

It has been officially confirmed by the State Bank of Pakistan (SBP) that Pakistan’s economy did not grow 3.3 percent in FY19 as initially claimed by the government.

It grew just 1.9 percent before recording a negative growth of 0.4 percent in FY20 for the first time in 68 years. The central bank has revised downwards components of FY19 gross domestic product (GDP) growth in its recently released third quarterly report for FY20.

Fiscal year 2018-19 was the first year of the Pakistan Tehreek-e-Insaf (PTI) government’s performance and PTI officials claim that the reason for the low GDP growth was an overheated economy.

‘Exports – main driver of economic development’

Without exports no country has ever developed, just like no country has developed without generating other countries’ interest in its economy through foreign investment, remarked Adviser to Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh.

Speaking at a webinar titled “Stabilising the economy through realistic reforms”, organised by the Karachi Council of Foreign Relations, Shaikh said because of the policy initiated by the current government to reduce imports and increase exports Pakistan had been able to bring down the current account deficit from $20 billion to only $3 billion in the last two years.

He emphasised that in the past five years the country had failed to generate export growth as the export growth rate was zero per cent, and in fact, it was negative.

Elaborating he said, “The bizarre policy of keeping the dollar cheap was followed by the previous government due to which a lot of foreign exchange was spent to try and preserve the dollar at a cheaper level.

“This led to the depletion of foreign exchange reserves and at the same time the import-export gap was allowed to touch a historic high.”

The Pakistan Tehreek-e-Insaf (PTI) government decided to let the rupee find its value as the market may determine. “Devaluation was a requirement to redress an anomalous situation from the past but now we are hoping to build upon this to try and generate exports,” he added.

“We shifted focus away from a free flow of all sorts of imports towards a policy of exports. And under that policy, we provided the business community with a lot of incentives.”

Pakistan: reforms needed to ensure sustainable growth

Federation of Pakistan Chambers of Commerce and Industry President Mian Anjum Nisar has stressed the need for serious structural reforms, with a keen focus on value-addition for a sustainable economic growth.

He recommended the government to raise exports to double digit of the GDP till the end of its term, as Pakistan’s exports have bounced back after witnessing decline in the last four months. The country’s exports have fetched $1.99 billion in July 2020, witnessing 5.8 percent growth in dollar terms.

Nisar said that consistent borrowing by developing economies to shore up its reserves in desperate times is only leading towards a debt trap. He said that borrowing from friendly countries should only be seen as a short-term solution to prevent reserves’ depletion and consequent further depreciation of the currency.

He also stressed that focus should be on promoting exports and restricting imports alongside making domestic industry more competitive and subsequently expanding its export market.

“Exports of goods and services are an injection into the circular flow of income, which lead to a rise in aggregate demand and an expansion of output, helping raise per capita incomes and reduce extreme poverty especially in developing economies like Pakistan.”

He said that world trade has still not come out of the dip in the wake of the coronavirus pandemic, as exports of regional countries including India and Bangladesh registered a decline but Pakistan’s exports bounced back, reporting around 5 percent growth in July 2020 compared with regional players.

Regarding market diversification, the FPCCI president pointed out that not much progress has been shown in this regard, as exports still seem to be heavily dependent on traditional export markets. He underlined the need for evaluating geographical diversification in order to re-align the focus towards new opportunities.

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