GDP Growth rate rising, more compulsory steps needed

According to the Economic Survey of Pakistan, Pakistan’s economy rebounded strongly in FY2021 and recorded growth of 3.94 percent which is not only substantially higher than the previous 2-year (-0.47 and 2.08 percent in FY2020 and FY2019 respectively) but also surpassed the target (2.1 percent for FY2021). Despite strict fiscal constraints, economists in Pakistan recorded that timely and appropriate policy measures taken through the Government of Pakistan resulted in a V-Shaped economic recovery. Start of 2021, amid global vaccination campaigns, the worldwide economy started showing healthy signs of recovery; however, third wave of the pandemic tempered the pace of economic recovery. No doubt, the pandemic which has already induced shocks such as lockdowns, border closures, collapse of trade, travel bans and financial market volatility globally.

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It was also recorded that third wave in Euro Area, UK, India and various other states further intensified these restrictions thus affecting the worldwide supply chains. Experts argued that for Pakistani economy, this pandemic also became a severe challenge as the government was already under the pressure of stabilization required to address Balance of Payments crisis emerged in FY2018. Thus, both consecutive adverse shocks; stabilization pressure owing to Balance of Payments (BoP) crisis and Covid-19 pandemic put the economy far below its potential level which resulted in a negative growth in FY2020. Beginning of new fiscal year was better in term of containment of pandemic and economic recovery, however second wave in late October 2020 and third wave in March 2021 made government efforts more challenging for containing the pandemic and keeping the economic activities to continue.

Statistics showed that real GDP growth of 3.94 percent in FY2021 is V-shaped economic recovery which shows concerted attempts of government for addressing structural issues to avoid further macroeconomic imbalances. The Government of Pakistan also took some immediately requisite measures for sustainable and robust growth along with protecting the most vulnerable segments of the society. Relief provision to vulnerable segments and growth support was government’s utmost priority.

However, high interest payments (July-March FY2021 Rs 2.1 trillion ($ 13.1 billion); 4.6 percent of GDP; 32 percent of Total Expenditures) restricted expenditure side from going all out with options, while the fiscal position further became weaker because of sharp fall in non-tax revenues (7.3 percent decline in July-March FY2021 compared to same period last year). Still government has not made any compromise on relief provision to vulnerable segments.

Presently economists in Pakistan presently identified that the International Monetary Fund (IMF) want the GDP growth rate to stay in the range of 5 percent and 5.5 percent for 2021-22. But it is hoped to see 6 percent (growth) in 2021. That’s going to be damaging for Pakistan economy. It is said that IMF programme is not going to impede the targeted 5 percent growth rate. Pakistan’s growth is not slowing down. As evidence of the higher-than-targeted growth rate of 5 percent for 2021-22, economists also identified that motorbike sales are at a record-high level, large-scale manufacturing growth is in double digits and tax collection is Rs 230 billion above its target. At this speed, Pakistan will cross Rs 6 trillion. It’s not due to imports. Income tax is also up 32 percent. It’s all-around growth. The use of electricity is up 13 percent.

As for the rising current account deficit, economists urged its numbers are balanced as of now. Sources recorded that the Government of Pakistan will clamp down on imports if the current account deficit keeps growing because it doesn’t want unsustainable growth. The export coverage of imports has to go up. It is also said that in 3 to 4 years, the export cover must go up to 70 to 80 percent. Pakistan is giving incentives to IT sector so that it can grow 100 percent.

Statistics showed that about 85 percent credit is disbursed in 9 cities while 3-quarters of it goes to the corporate sector. It’s dysfunctional. The Government of Pakistan has got to fix it. Economists said it takes 10 to 20 years of consistent growth for trickle-down economics to work. Trickle-down doesn’t follow 4-year growth. That’s why the government is adopting a bottom-up approach. The government will offer poor 4m households with interest-free loans for agriculture, business and housing purposes, besides ensuring healthcare and technical education for them at a cost of Rs1.4tr. Pakistan will have large banks wholesale finance to NBFIs (non-bank financial institutions) and microfinance NGOs. Now is the time to roll out loans.

The Government of Pakistan must take necessary measures for achieving a higher, sustainable and inclusive growth rate in the ongoing fiscal year. Thus, increased size of PSDP, better containment of pandemic along with roll-out of vaccination will keep momentum of the economic growth. It is also said that agriculture and Industrial Packages will not only bring growth in respective sectors but also give boost to the wholesale and retail trade sub-sectors and others sectors in services. Likewise, special lending schemes for housing, SMEs and agriculture will assist financial sector growth. Furthermore, reopening of economies and government initiatives to expand trade will assist in strengthening external sector of the economy as well.

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