Federal Minister for Finance and Revenue Shaukat Tarin on Thursday said that in terms of growth rate, Pakistan was ahead of targets set by the government and International Monetary Fund (IMF) for the outgoing fiscal year.

Tarin said this while presenting the Economic Survey of Pakistan 2021 during a press conference in Islamabad. 

The economy is recovering,” he said, referring to the positive indicators. He said the government had expected the economy to grow by 2.1% this year and the funding organisations like IMF, World Bank, had released an ever lower estimate. 

PAKISTAN ECONOMIC SURVEY:

As per the survey, the provisional GDP growth rate for FY 2020-21 is estimated at 3.94 percent, higher than the targeted growth of 2.1 percent, for the outgoing fiscal year. The government is monitoring the country’s situation actively and is taking necessary measures to facilitate agriculture and industry sectors to avoid the downside risk and to further accelerate the economic recovery, it added.

The GDP growth is based on 2.77, 3.57 and 4.43% growth in the agriculture, industrial and services sector, respectively. In order to uplift the agriculture sector, the National Agriculture Emergency Programme with a cost of Rs277 billion is already underway, it said.

Under this programme, 13 mega projects are under execution. During 2020-21, the government also announced the “Rabi Package” of Rs5.4 billion to reduce the input cost for the farmers with the special intent to increase the production of wheat in the country, as per the survey.

In addition, the Minimum Support Price of wheat has been further enhanced from Rs1,400 to Rs1,800 per 40 kg to encourage wheat cultivation, it said. Similarly, the agriculture credit disbursement target for the current fiscal year has been set at Rs1,500 billion, it added.

These measures have borne the fruit in terms of significant growth in major and minor crops. According to the economic survey, on the industrial front, there was a significant rebound in economic activity, as Large Scale Manufacturing (LSM) gained traction.

The industrial sector has witnessed a remarkable turnaround largely because of accommodative policies by the government in the form of industrial support packages, relief to export-oriented industries, duty exemption under China-Pak Free Trade Agreement-II, electricity and gas subsidy for the export-oriented industries and tax exemptions for electric vehicles manufacturers, it added.

The government’s incentives for the construction sector provided the impetus for its allied manufacturing segments, the survey said.

According to the survey, the cement industry has been given special attention by reduction of Federal Excise Duty to Rs1.5/kg from Rs2/kg. A National SME Policy Action Plan 2020 has been approved to provide much-needed support to SMEs. These measures enabled the resumption of business activities, it added.

The strong growth in the construction and LSM sector is likely to further broaden the recovery through the spillover effect.

On the external front, the survey said, the current account balance remained in surplus during the first 10 months of 2020-21 due to strong growth in remittances and an ongoing pickup in exports.

Remittances witnessed a remarkable growth as more formal channels were opted due to restrictions imposed on informal means in the wake of COVID-19.

Most importantly, measures undertaken as part of anti-money laundering regulations in accordance with FATF recommendations have also facilitated a shift from informal to formal channels of sending remittances.

Similarly, efforts under the Pakistan Remittances Initiative (PRI) and the gradual re-opening of businesses in major host countries such as the Middle East, UK and the USA also played their part in giving a boost to the remittances.

Added with this, timely resumption of economic activities helped the export sector performed relatively better than other emerging economies; both of which led to an improvement in the external sector. It is worth mentioning here that under the IMF programme there are better prospects for the external sector which ensures that the external financing needs will be comfortably met.

On fiscal side, a substantial increase in tax collection and effective management of expenditures helped in containing the fiscal deficit as a percentage of GDP, while the primary balance continues to remain in surplus. The fiscal performance during (July-March) FY2021 shows that the fiscal consolidation policy helped in achieving fiscal discipline, increasing revenues and controlling expenditures. Especially, FBR tax collection has witnessed a double-digit growth during (July-April) FY2021 reflecting growth in economic activities despite the challenge of the third wave of COVID-19.

During FY2021, SBP maintained the policy rate at 7.0 percent. The existing stance of monetary policy remained appropriate to support the economic recovery with inflation expectations well-anchored and maintaining financial stability. It is pertinent to mention that inflation all over the world remained volatile mainly due to supply-side disruptions in commodities due to the COVID-19 pandemic. Rising international prices are putting pressure on domestic prices. Global food prices are at their highest in a decade (FAO).

The government is closely monitoring the supply and demand for essential food commodities to mitigate the impact of international inflationary pressures and ensure a smooth supply of commodities. Similarly, the government is making all possible efforts to combat profiteering and hoarding, as well as providing essential commodities at affordable prices through establishing Sasta Bazaars and providing subsidies on essential food items at the Utility Stores.

The beginning of FY2021 was better in terms of containment of pandemic and economic recovery, however the second wave in late October 2020 and the third wave in March 2021 made government efforts more challenging for containing the pandemic and keeping the economic activities to continue. Regardless of fiscal constraints, relief provision to vulnerable segments and growth support was the government’s utmost priority.

Pakistan’s economy is now on course towards strong and sustained recovery. The pandemic resulted in lockdown and depressed demand. Adequate government policies were implemented to keep economy moving. Utilization of unused industrial capacities during the pandemic also helped in economic recovery. On the basis of a rebound in almost all sectors, for FY2021, the provisional GDP growth rate is estimated at 3.9 percent on account of 2.8 percent growth in Agriculture, 3.6 percent in the Industrial sector and 4.4 percent growth in the Services sector. Moreover, GDP at current market prices stood at Rs 47,709 billion, showing a growth of 14.8 percent during FY2021 over last year (Rs 41,556 billion). While in the dollar term, it remained $ 299 billion which is higher than its value recorded last year ($ 263 billion).

Private Consumption has a significantly large share in GDP. This large share implies that Pakistan’s economy is a consumption-driven economy. Better consumer confidence can influence domestic production by increasing demand for durable. Growth in private consumption remained 17 percent in FY2021 as compared to 4 percent last year. On the other hand, growth in Public Consumption remained 11.4 percent, lower than 19.3 percent recorded last year, mainly due to lower growth in interest payments and squeezing of unnecessary expenditures.

Gross Fixed Capital Formation (GFCF) posted a growth of 13.8 percent in FY2021 and remained 13.6 percent of GDP. Private and public including the General Government being two major components of GFCF posted a growth of 6.6 percent and 38.1 percent, respectively.

In aggregate demand, historically contribution of Net Exports usually remained negative. For FY2021, in National Accounts, Exports of Goods and Services posted a growth of 13.6 percent while Imports of Goods and Services posted growth of 20.1 percent. However, for current year, capital goods and raw materials were the main imports which in turn helped in the growth of exports as well as domestic economic recovery.

FISCAL DEVELOPMENT:

The fiscal sector has witnessed significant challenges due to additional expenditures made to lessen the negative impact of COVID-19. However, the government’s fiscal consolidation efforts provided significant support in maintaining fiscal discipline, increasing revenues and controlling expenditures, thus the fiscal sector continued to perform better. The fiscal deficit was contained at 3.5 percent of GDP during July-March FY2021 against 4.1 percent of GDP in the same period of last year. The primary balance posted a surplus of Rs 451.8 billion during July-March, FY2021 against the surplus of Rs 193.5 billion in same period last year.

The FBR tax collection witnessed a significant rise in ten months. During July-April, FY2021 the total collection grew by 14.4 percent to stand at Rs 3,780.3 billion against Rs 3,303.4 billion in the same period of FY2020. Encouragingly, the tax collection surpassed the target by more than Rs 100 billion during the period under review. The revenue performance is not only a reflection of growing economic activities without any disruption even in the wake of the third wave of COVID-19, but it also suggests that the efforts to improve the tax collection through various policy and administrative reforms are bearing the fruits.

The non-tax revenues stood at Rs 1,227.6 billion during July-March FY2021 against Rs 1,324.4 billion in the same period of last year, showing a decline of 7.3 percent. The decline is mainly attributed to the absence of a one-off renewal fee for GSM licenses from telecommunication companies.

The efficient expenditure management effectively curtailed the overall expenditures during the current fiscal year. Total expenditures grew by 4.2 percent during July-March FY2021 as compared with the growth of 15.8 percent observed in the same period of FY2020.

Presently, the fiscal policy measures are mainly focused on relief measures to support businesses and to protect vulnerable segments of society. Simultaneously, the government is focused on containing the fiscal deficit at a manageable level and keeping the primary balance at a sustainable level. The fiscal performance during the first three quarters of FY2021 is satisfactory. However, challenges to fiscal performance still persist which largely depend on the domestic and international evolution of COVID-19 and its perils for the economy. Nevertheless, effective revenue mobilization and prudent expenditure management strategy would be supportive in coping with these challenges.

BORROWINGS:

The government has borrowed Rs 675.9 billion for budgetary support during 1st July-30th April, FY2021 compared to Rs 1,171.3 billion in the same period last year.

Within budgetary support, the government has borrowed Rs 1,840.6 billion from scheduled banks as compared to the borrowing of Rs 1,813.4 billion in a comparable period last year. On the other hand, the government has retired Rs 1,164.7 billion to SBP as compared to the retirement of Rs 642.2 billion during the same period last year.

This shows a continuation of government adherence to zero borrowing from the central bank.

INFLATION:

The Consumer Price Index (CPI) inflation for the period July-May FY2021 was recorded at 8.8 percent against 10.9 percent during the same period last year. The other inflationary indicators like the Sensitive Price Indicator (SPI) was recorded at 13.5 percent against 14.0 percent last year. Wholesale Price Index (WPI) was recorded at 8.4 percent in July-May FY2021 compared to 11.1 percent last year.

During July-May FY2021, National CPI inflation for FY2021 remained lower than same period last year. Administrative measures including a crackdown on speculative elements and resumption of seasonal supplies of perishables helped to minimize the inflationary pressures. Furthermore, tax relief measures in Budget FY2021 in response to COVID-19 also provided relief in terms of stable prices of various goods.

At the beginning of FY2021, a major contribution to increase in inflation in both urban and rural baskets came from food groups mainly due to the extended monsoon season.

The government realizing the significance of supply disruption started establishing Sahulat/Bachat Bazar in all parts of the country. The rise in the prices of global agrarian products and other commodities especially oil contributed to domestic inflation as well.

As far as oil prices are concerned, the government did not pass on the burden of price increase to the general public proportionately in order to maintain price stability.

TRADE AND PAYMENTS:

Amidst the uncertain and precarious global economic environment, where the global economy was lurching under the impact of the unprecedented COVID-19 shock, Pakistan’s external sector has appeared as a key buffer for resilience.

 The comfortable external balance position of Pakistan has been supported by surplus current account balance on the back of robust flow of remittances and a sustained recovery in exports.

Furthermore, improvements in the services and primary income account also provided a cushion to turn the current account deficit of $4.7 billion in FY2020 into a surplus of $773 million during July-April FY2021.

The inflow of workers’ remittances in Pakistan has been rising consistently since FY2018 and the trend continued in FY2021 with a meritorious growth of 29.0 percent and reached $24.2 billion during July-April FY2021.

Export of goods grew by 6.5 percent during July-April FY2021 and stood at $21 billion as compared to $19.7 billion in the same period last year. Import of goods grew by 13.5 percent to $42.3 billion as compared to $37.3 billion last year.

Consequently, the trade deficit increased by 21.3 percent to $ 21.3 billion as compared to $ 17.6 billion last year.

Pakistan’s total liquid foreign exchange reserves increased to $22.7 billion by the end of April 2021, up by $3.8 billion, indicating a growth of 20.1 percent over the end-June 2020. On account of increased foreign exchange reserves, supported by remittances, exports and financial support from International Financial Institutions, the Pakistani Rupee started to appreciate. The introduction of a market-based exchange rate regime also helped to stabilize the Rupee and the exchange rate reached Rs 153.5 per dollar by the end of April 2021, effectively appreciating by 9.5 percent over end-June 2020.

TARIN PRESSER:

The economic activity has started to revive, the minister said, adding that the smart lockdown announced by PM Imran was a great move to save the economy from Covid-19. Furthermore, the leverage given to the construction sector via an amnesty scheme also helped in reviving the economy and confidence of the investors, he added.

The federal government incentives for the textile, agriculture and construction sector helped these sectors to grow, according to the finance minister. The Large Scale Manufacturing (LSM) saw a record growth of 9%, he said, adding that the agriculture sector recorded a growth of 2.7% as maize, rice and wheat witnessed bumper crops.

Speaking about the remittances, the finance minister said they are also on a high as last month Pakistan received $2.5 billion. FY21 remittances saw a record increase to $29 billion which in turn has helped the current account to be in surplus, he added. Tarin said Roshan Digital Account remittances crossed $1 billion during the current financial year. The foreign exchange reserves have now crossed $16 billion, he added.

Talking about the international oil prices, the finance minister said that crude oil price was up by 119% and that was the reason that petroleum prices increased by 14% but we have passed. Prices of palm oil and sugar have gone up by 58%.

The Pakistan Stock Exchange (PSX) is one of the best performing stock markets in the world and definitely the best in Asian markets, said Tarin.

Ehsaas programme is one of the best programmes introduce worldwide. 15 million families have so far benefited from this programme. Emergency cash was given to all these families. Prime Minister introduced the Kamyab Jawam programme and 8500-9000 people have registered so far.

During the fiscal year under review, one billion trees have been planted. All credit rating agencies reaffirmed their support, which means the stabilisation programme has succeeded.

“Now we have to move towards growth,” Tarin reiterated.

$22.5 BILLION EXPORTS:

While briefing the media the special adviser to Prime Minister on Commerce and Industries Razak Dawood said that the exports increased and reached $22.5 billion by May 2021.

“Our exports should focus on value-addition and diversification.”

Exports are expected to reach $25 billion by June end. Exports of textile garments, menswear, womenswear knitwear all grew substantially.

Cotton yarn exports, however, declined but it is good news because most of the cotton yarn remains in Pakistan and value can be added to it, he added.

The pharmaceutical industry has seen drastic growth in exports, he said.

“Next year, we will focus on engineering, chemicals and other sectors,” he added.

The PM aide highlighted many reasons behind industrial growth which include decline in customs duty and affordable raw material prices.

Power Sector

Speaking about the energy challenges, Tarin said Pakistan’s economy was burdened due to the overcapacity in the power sector, saying that “it was a very big challenge and a black hole” for Pakistan. 

“We have to continue to make capacity payments as a result,” he said, adding that even if Pakistan continued to grow at 4,5 or 6% in the next couple of years, the extent to which Pakistan had overbuilt, it is not possible for the country to utilise that capacity. 

Ehsaas Programme

Special Assistant to the Prime Minister on Poverty Alleviation and Social Safety Sania Nishtar said two years ago Ehsaas was drafted.

About 24 million people are daily wagers in Pakistan and their work stopped in lockdown. Still, every target of the Ehsaas programme is on track, Nishtar added.

“Pakistan’s first digital census was put on track under this programme,” Nishtar said adding that Educational scholarship was granted along with interest-free loans.

The author is a senior business reporter with bylines in leading newspapers and magazines across Pakistan.

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