The Ministry of Finance has said that the government’s extensive measures have helped the economy move progressively along the adjustment path and stabilization process and economic recovery is expected towards the end of FY2020.
The Finance Ministry has acknowledged that during FY 2019, the slowdown in the economy was largely attributed to various policy measures to manage the twin deficit crisis. Consequently, these measures helped to contain demand pressures and contributed to import compression. However, the outcomes of these measures were realized in the industrial sector. Particularly the LSM sector witnessed a decline.
At the same time, high input costs along with water shortages weakened the agriculture sector’s output and hence, the drag in the commodity-producing segments spilled over to the services sector as well. Resultantly, the real GDP growth recorded at 3.3 percent.
“The government is focused on bringing improvement in the real sector growth through inclusive growth in agriculture, industrial and services sectors,” said a statement by the Finance Division in response to certain news reports regarding downward revision of growth by the World Bank.
The government is cognizant of challenges and stringently focused on resolving them particularly, reducing inflation, creating job opportunities and achieving a high growth rate.
The World Bank, in its report ‘2020 Global Economic Prospects’, had forecasted Pakistan’s current year growth rate at 2.4% before touching 3% next fiscal year and 3.9% in FY2022. The bank’s report had also mentioned that the growth had decelerated an estimated 3.3 % in FY2018-19, reflecting a broad-based weakening in domestic demand. In addition, the report had described that significant depreciation of the Pakistani rupee resulted in inflationary pressures, monetary policy tightening restricted access to credit, curtailing public investment to deal with large twin deficits and budget deficit rose more sharply than expected.
At the start of the current fiscal year, with the government’s extensive measures, Pakistan’s economy is now moving progressively along the adjustment path and stabilization process; however, towards the end of FY2020, economic recovery is expected. In this regard, the government is focused on bringing improvement in the real sector growth through inclusive growth in agriculture, industrial and services sectors.
For growth in the agriculture sector, the target production of wheat is 27 million tons given by FCA in last meeting held in October. In addition to uplift agriculture sector “National Agriculture Emergency Programme” in coordination with all provinces has been introduced and approved 13 megaprojects at the cost of Rs. 287 billion. The agriculture credit disbursement target for CFY20 has been set at Rs. 1,350 billion. Agriculture credit disbursement increased by 20% to Rs. 482 billion during Jul-Nov, FY2020 against Rs. 402 billion last year.
To boost the industrial sector, the government is providing a series of subsidies and incentives to the industrial sector. These include subsidies to industry for electricity and gas, export development package and continue to provide Long-Term Trade Financing (LTFF) and Export-Refinancing Scheme (ERS) at a subsidized rate.
Similarly, the PSDP release process is simplified and up to 3rd January 2020 Rs. 301.4 billion (Rs. 225.4 billion) released to encourage construction-related industries especially cement & steel. In addition, Cement dispatches growth of 6.55% (24.8 million) during July-Dec, FY2020 against 23.2 million in the last year. This development would likely stimulate the growth in LSM in the coming months.
On the fiscal side, to control expenditures, the government is following austerity measures with the complete restriction on supplementary grants. For export promotion, several initiatives have been announced such as support duty structure on raw materials and intermediate goods, improve the mechanism for tax refunds, provide electricity and gas at a competitive cost, and make Pakistan part of the global value chain.
Government’s various measures to stabilize the economy has already started to reap benefits in the form of sustained adjustment in current account deficit (CAD) and continued fiscal prudence. A brief review indicates that CAD reduced by 72.9% during July-November FY2020, Fiscal deficit contained at 1.6% of GDP (Rs. 686 billion) during Jul-Nov FY2020, Primary balance posted a surplus of Rs. 117 billion during Jul-Nov, FY2020 (0.3 percent of GDP), a significant rise in FBR tax revenues to Rs. 2085.2 billion (16.4 %) during July-December, FY2020, improved ranking in ease of doing business, ranked among the world’s top 10 best business climate improver and ‘Stable’’ credit outlook to B3 from ‘Negative’ by Moody’s is an affirmation of Government’s success in stabilizing the economy and laying a foundation for robust growth.