Pakistan’s economy performed beyond expectations with all major macroeconomic indicators showing a positive trend amid the covid-19 pandemic, resulting in a 3.94 percent economic growth rate this fiscal year, compared to a revised negative 0.47pc in 2019-2020. The growth figures came as a surprise as the State Bank of Pakistan (SBP) had estimated GDP growth at 3pc, while the Finance Ministry’s projection was slightly on the lower side. The growth projection of multilateral donors— the International Monetary Fund and the World Bank— was between 1.3percent and 1.5 percent for the fiscal year 2020-2021. Now the 2021-2022 budget will be a major opportunity for Pakistan’s economy to accelerate out of the covid-19 pandemic by encouraging home-grown enterprise at the same time as attracting foreign investment. Foreign Direct Investment (FDI) has always been a constant priority for successive governments. Total FDI in 2019 rose by 30 percent compared with the year before to $2.2 billion, which is good news as investment creates jobs and increases prosperity for the country. The coming budget is the time to act and to strengthen the fabric of Pakistan’s economy.
We need two million jobs every year. The economy needs to expand by 7 percent next year. The federal government will earmark as much as $6 billion for development expenditure in the upcoming year. Pakistan plans to boost spending on large infrastructure projects by as much as 40 percent to create jobs and foster productivity in an economy crippled by the coronavirus pandemic. First we have to get more revenues, targeting about Rs 6 trillion next year in tax authority revenue, compared with this year’s Rs 4.75 trillion target. Unless we get more revenues, forget about any incentives to boost the economy.
Pakistan’s economy, in nominal terms, has ballooned by Rs 6.1 trillion or 14.8 percent in the outgoing fiscal year 2020-21 compared to the last fiscal year mainly because of higher inflation figures. On other hand, in dollar terms, Pakistan’s GDP size increased from $263 billion in 2019-2020 to $296 billion whereas it went up by $33 billion in the current fiscal. The exchange rate appreciation helped the government to jack up the size of the economy in dollar terms by $33 billion in either financial year. The exchange rate improved so it decreased the public debt as well as improved the GDP size in dollar terms. The per capita income in dollar terms has jumped by 13.4pc to $1,543 during this fiscal year from $1,361 last year. The per capita income had posted a growth due to a combination of GDP growth and strengthening of the rupee against the dollar.
The path ahead will require skillful domestic policies that manage trade-offs between lifting near-term activity and addressing medium-term challenges, while sustaining the recovery will also require strong international cooperation on health and financial support for countries facing liquidity shortfalls. Moreover, investments in health and education including remedying losses incurred during the pandemic can help achieve participatory and inclusive growth.
The central bank, which has cut interest rates to a three-year low to support the economy, has been on pause mode for a while and has left some of the heavy lifting to the government. For a number of years, the services sector was a major reason for economic growth in the country and it has witnessed a growth of 4.43 percent this year. The services sector has been impacted this year too, partially by the covid-19-related shrinkage in service delivery in major sectors. However, the agriculture sector posted a —paltry 2.77 percent growth, while industrial output grew 3.57 percent. Our V-shaped recovery is balanced between the three major sectors— agriculture, industry and services.
The concept is proving true in Pakistan’s case given the burgeoning remittances, current account surpluses, ameliorating foreign exchange, and an orderly market-based rupee. The current positive situation will only be short-lived if there isn’t an upturn in exports on robust fundamentals. Hence the government must ensure that it devises a strategy with fiscal reforms focused on perennially increasing exports.
Pakistan’s fortunes are linked to China’s growth, and the Mainline Project in Pakistan is a railway line that runs all the way from Karachi in South to Peshawar in North. It is the largest Chinese initiative in Pakistan. More than 2600 kilometres of railway track is being built at a cost of $6.8 billion. It will not be an easy task for the government to revive the stalled $6 billion IMF loan programme. Pakistan’s budget deficit‒ the gap between expenditures and revenues‒ will be 6.7 percent of GDP in the current fiscal year and 4 percent for fiscal year 2022-2023, which will be the last year of the PTI government. Revenues have been calculated at 16.1 percent of GDP for the current fiscal year, slightly higher than the government’s budgetary target.
Pakistan needs annual economic growth of around 7 percent to create jobs sufficient to absorb the youth bulge. Any economic growth below this adds to unemployment and poverty. Debts have soared to a level where it is impossible for any new government to govern efficiently. They borrow to retire past loans and some more to run their affairs. There must be more attention on industrial growth and projects that add to the economy by creating jobs and boosting exports. Hence, this vicious cycle of debt has crippled our economy and resulted in excruciating inflation.
The people of Pakistan struggle day in and day out, facing the worst of the inflation and unemployment. We need long term plans that ensure debt retirement and steps to strengthen the economy by boasting industrial, agricultural, and service sectors. Moreover, there is an urgent need of fiscal forms, as economic privileges accorded to Pakistan’s elite groups, including the corporate sector, feudal landlords and the political class, add up to an estimated $17.4 billion, or roughly 6 percent of the country’s economy, a new United Nations report has found. Over time, once the recovery has taken a strong hold, policies should shift gradually to facilitating reallocation of workers from sectors likely to shrink on a long-term basis to growing sectors.
The path ahead will require skillful domestic policies that manage trade-offs between lifting near-term activity and addressing medium-term challenges, while sustaining the recovery will also require strong international cooperation on health and financial support for countries facing liquidity shortfalls. Moreover, investments in health and education including remedying losses incurred during the pandemic can help achieve participatory and inclusive growth.
