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Overly optimistic GDP growth

There is a fascinating discourse these days almost at every forum about the government claim of the GDP growth to be achieved by the end of this fiscal. This claim is out of the blue since a couple of months ago, the GDP growth estimates were rather contrary to the present one even by the government circles and the central bank of Pakistan, let alone the IMF and the World Bank. Even 3% growth was being deemed overly optimistic until recently. The question is whether this growth estimate is solely premised on the foreign remittances and agriculture output. There is no denying that inflation has devastated the low income and impoverished strata of the society.

Should the poverty-stricken population deem skyrocketing inflation and record foreign remittances the only reasons for the much-trumpeted economic growth of Pakistan?

The global economy is under strain in the wake of over 167 million coronavirus cases coupled with more than three million deaths so far. Pakistan’s trade by and large is with the USA, Europe, China and the Middle East which are the hardest hit, to be precise. Though contained, coronavirus has wreaked havoc on various sectors of the economy of Pakistan. Pakistan’s cotton production during the current fiscal is abysmal vis-à-vis 15 million bales in 2014-2015. Premised on the present data, cotton imports by the end of this fiscal might drain around $3 billion from the coffers of the government. We have had bumper wheat crop of around 27 million tonnes, however, we have been importing wheat to meet the demand and also to curtail exorbitant flour prices across the country. Wheat flour is still an expensive commodity in Punjab which has harvested around 21 million tonnes of wheat during this season. The country has imported 3.6 million tonnes of wheat worth $983 million in nine months of this fiscal. We have been importing sugar, vegetables etc. Pakistan’s food import bill is around $7 billion year-on-year during the 10 months of the current fiscal. Inflation is in double digits which has ruined major chunk of the population. Referring to the coronavirus situation in Pakistan, there are plenty of concerns even today. 4,763 virus patients are in critical condition in Pakistan. Punjab and Khyber Pakhtunkhwa (KPK) are still reeling. 50% of the active Covid-19 cases in the country are in Sindh. Sindh government has imposed new curbs to restrain the rise in Covid cases. Our neighboring India’s coronavirus death toll is staggering 300,000 which is the 3rd highest in world. Many countries have imposed travel ban on the denizens of South Asia afflicting Pakistan as well.

Premised on the above situation, there is widespread skepticism about the government claim that the economy of Pakistan will grow at 3.94 percent in the current fiscal year. The government claims it a strong V-Shaped growth despite being in a tough International Monetary Fund program. The government substantiates its claim citing record foreign remittances, robust growth in exports, bumper wheat crop, sound foreign exchange reserves and 9% growth LSM sector.

Diaspora remittances are all-time high of $24 billion during the 10-month period of the ongoing financial year. Colossal inflow of remittances has revitalized the current account which is in a surplus of $959 million. Large-scale manufacturing has exhibited robust growth of 9% during the first three quarters of the current year. Export figures are quite encouraging as well and the official estimate is around $25 billion by the end of this fiscal.

It seems as if the government is overly optimistic. We must remember that our economy shrank 0.4% during the preceding fiscal and Covid-19 was referred one key factor behind that economic slump. Covid-19 concerns are still prevalent. There is no denying the fact that five million people have been rendered unemployed and 20 million Pakistanis gone into the worst poverty. The government has not been able to tackle the unabated inflation. Prices of basic commodities are exorbitant. Food inflation is the major concern of the people with low income. In order to have real economic growth, Pakistan needs to spur the growth in exports, which would pay dividends. Pakistan’s GDP size is around $280 billion. Pakistan’s exports must grow to 25% of its GDP which is $70 billion. This is the only way through which Pakistan could have a sustainable economy in the long run. There are countries in the region whose exports are around 20% of its GDP size such as Sri Lanka and India.

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