Economic growth of Pakistan

Analysis of economic survey of Pakistan FY 2021 showed that the economy of Pakistan rebounded strongly in FY2021 and recorded growth of 3.94 percent which is not only substantially higher than the previous two years (-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, the economists of Pakistan also recorded that timely and appropriate policy initiatives taken through the government resulted in a V-Shaped economic recovery. Start of 2021, amid worldwide vaccination campaigns, the global economy started showing healthy signs of recovery, however, third wave of the pandemic tempered the pace of economic recovery. The pandemic which already induced shocks like lockdowns, border closures, collapse of trade, travel bans and financial market volatility globally. It is also said that projecting difference in recovery on the basis of divergent circumstances of each country and the idiosyncrasies of its policy response. It was stated that success in the post-pandemic era will reflect a constellation of strategies and capacities peculiar to each country, counting national vaccination rates, integration into major economic blocks, the ability to provide fiscal and monetary stimulus and the restoration of solvency in the private sector. For Pakistani economy, this pandemic also became a severe problem as country 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. First wave of pandemic started in April 2020, depressed majority of economic activities. 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 of Pakistan attempts more challenging for containing the pandemic and keeping the economic activities to continue. Statistics showed that the real GDP growth of 3.94 percent in FY2021 is V-shaped economic recovery which shows concerted efforts of government for addressing structural issues to avoid further macroeconomic imbalances. No doubt, the government also took some immediately requisite measures for sustainable and robust growth along with protecting the most vulnerable segments of the society. Although in FY2018, real GDP growth stayed 5.5 percent and per Capita Income was $ 1,630. However, Gross External Financing requirements also soared to approximately $ 30 billion thus caused unsustainable fundamentals on Balance of Payments (BoP) side. More specifically, in the economy the total expenditures substantially exceeded the income generated by the various sectors of the economy. This resulted in a substantial current account deficit of the BoP, which was financed through running down the country’s official reserves up to the point that the State Bank of Pakistan (SBP) had no further resources to maintain the exchange rate. The incumbent government thus took difficult decisions in rationalizing exchange rate and aligned it to the market value-based exchange rate adjustments. In FY2021, external account was stabilized, economic revival started through resumption of economic activities and containment of initial domestic spread of the pandemic, even lead to an appreciation in the Pak Rupee vs. dollar. International sources recorded that the World Bank (WB) has slashed Pakistan’s economic growth rate forecast for the current fiscal year to 4.3 percent, down by almost 1.0 percent against previous year, and said the last ditch energy subsidies by the outgoing government put an additional burden on budget and threaten the International Monetary Fund (IMF) programme. Experts stated that GDP growth is expected to slow to 4.3 percent in FY22 (against 5.6 percent previous year) and to 4 percent in FY2023. Sources also recorded that in January, Pakistan’s GDP growth was put at 5.2 percent which has since been changed. This comes amid monetary tightening measures that began in September 2021, high base effects from the last year, and continued high inflation eroding real private consumption growth. No doubt, presently our country is passing through two main realignments – an internal political realignment and an external geopolitical realignment. Pakistan desperately needs a new economic growth strategy. Pakistan needs to embrace three things: savings, investment and productivity. Furthermore the government of Pakistan must continue to take the necessary measures for achieving a higher, sustainable and inclusive growth rate.