By Zaid Munir
These days, a Pakistani layman is bombarded with news regarding the deteriorating condition of the country’s economy. So-called analysts are continuously trying to prove that the PTI Govt has failed to revive the country’s economy.
But, is the situation really that bad?
It is not. In fact, it is the other way around.
Slowing down of GDP growth rate, inflationary pressure, PKR depreciation, etc. are the inevitable consequences of much-needed economic adjustments and stabilization measures. The fiscal consolidation and monetary tightening policies adopted by PTI Govt are for a soft landing of the crash the economy had been heading towards.
Now, the question becomes: what are the outcomes of these reforms and policy measures?
Let’s dive in.
There is a massive 35% reduction in Pakistan’s trade deficit for first quarter 2019-20. From July-Sep 2019, the trade deficit dropped to USD 5.73 billion from USD 8.79 billion in the corresponding period from last year. Moreover, around a 25% decline in trade deficit was recorded in September 2019 when compared to the same month of the previous year.
This happened because of a sharp decline in imports and increase in exports for the period. Non-essential luxury imports are on decline; however, the duty-free imports of raw material and machinery witnessed a growth of 7%. Hence, the trade deficit has been reduced without hampering the economic activity in the country. Allowing duty-free imports of machinery and raw material will boost the industrial growth in the current year.
Exports volumes are on the rise; however, they need a price push as unit price declined. In FY 2019-20, Pakistan’s total export quantity increased by 12%. The textile industry witnessed 26% growth in volumetric terms because of getting regionally competitive energy tariffs. However, due to a significant decline in textile prices globally, this increase in export volumes did not translate into substantial value terms.
Nevertheless, the textile sector has become viable now, after remaining in the red for a decade.
The construction industry is also picking up as both the local sales and export numbers of cement have registered double-digit growth. Around 11.5% increase in domestic consumption and a 11.7% increase in exports recorded for September 2019 as compared to September 2018.
An upsurge in the inflows of foreign remittances is also contributing towards the economy’s revival. 18% YoY and 3% MoM increase was recorded in remittances for September 2019.
Significant improvement in FBR tax collections with double-digit growth for first quarter FY 2019-20 (14.8% increase recorded vs the corresponding period last year). YoY September’s tax revenue collection shows 17.6% growth as compared to the same month previous year.
The number of income tax returns has also increased by 14% in Q1 2019-20 as compared to the corresponding period last year.
The country has received a net foreign investment of around USD 328 million in debt instruments (primarily T-Bills) for July-Sep 2019, making it the highest ever foreign portfolio investment. Pakistan is fast becoming an attractive option for world investors.
USD 2 billion foreign investment in debt instruments is expected by the end of the current fiscal year. The increase in investment is due to the high rate of return, increase in benchmark interest rate, return of stability in the rupee-dollar exchange rate, tax relaxation for non-resident companies, and reduction in withholding tax from 30% to 10% on investment in T-bills.
SBP profits are expected to be more than PKR 400 billion in FY 2019-20 (significant increase as compared to previous years). The capital buffer has also stabilized because of the improvement in foreign reserves.
Circular debt per month declined by 32% in FY 2018-19 as compared to FY 2017-18. It has further decreased by 54% in FY 2019-20 as compared to previous year.
Foreign Direct Investment:
Some huge foreign direct investments are also in the pipeline: USD 5 billion investment by UAE in oil refinery project; USD 21 billion investment by Saudi Arabia in various projects in Pakistan etc.
Pakistan has met all the six quantitative targets of IMF by first quarter-end (July-Sep 2019).
As per economic experts, the inflation will dip down in the coming months.
KSE-100 index is on upward trajectory showing an increase in investors’ confidence.
Pakistan is now moving from a consumption-driven import-based growth model to an exports-oriented domestic-productivity model.
The transition from a fixed exchange rate to a market-driven exchange rate has proved its significance through stability in Pakistani rupee and healthy external accounts. The rupee-dollar exchange rate has been stable since July 2019. Business confidence has started to rise.
Second Phase of CPEC:
The second phase of CPEC has started that involves industrial and socio-economic development. Special economic zones (SEZ) will be established in various regions of the country. Agriculture and trade will be the key focus areas of the 2nd phase. This will enhance foreign direct investment (FDI) in the country.
Global Appreciation for Government Efforts
Global financial institutions and agencies have appreciated PTI Govt’s efforts for economic revival. World Bank, IMF, Asian Development Bank, Sina Finance (China), etc. to name a few.
According to them, Pakistan’s economy is showing signs of recovery and stability due to various reforms and policy measures implemented by current Govt. The fiscal consolidation, monetary adjustment policies, and austerity measures have been lauded. Investors’ confidence has restored that will boost the foreign capital inflows and foreign direct investment in Pakistan.
Pakistan’s economy is shifting towards import-substitution industrialization via supporting the domestic businesses and export-led sectoral development. Stabilization measures of current Govt are yielding results and their results will be visible in the coming years. Macro stabilization and success on external sector are evident from the economic stats.
The direction is right, policies have been implemented and Pakistan’s economy is finally heading towards the right course.
Hence, for the conclusion, the PTI Govt is right on track at the moment.
About the Author
Zaid Munir has a corporate background with an avid interest in economics, sports and politics. He tweets at @zaid__munir
Note: The sentiments expressed in this article are the author’s own.