Is Pakistan Economy Over the Hump?
For Imran Khan and his economic team despite World Bank returning to financing projects, portends remain grim with growth unlikely to cross 3 percent in the current fiscal
A year ago none would have wagered over the recovery of Pakistan’s economy? Even today, there is not much to talk about the state of finances or the deficits of a nation that appears to be eternally on adrenalin from international banking and friends and patrons. Yet the ides of collapse seem to have been crossed at least for now. Here are some signs of the same-
First – World Bank has restored budgetary support to Pakistan, an indication of the strengthening of the economy.
Asian Development Bank (ADB) and the World Bank had suspended budgetary support to Pakistan in 2017 due to macro-economic imbalances; now the Bank is back following the restoration of funding by the ADB earlier.
WB is due to approve a $500 million loan to bring improvement in fiscal management and harmonise sales tax.
WB may also approve a development policy credit — the Resilient Institutions for Sustainable Economy (RISE) programme — by March 2020.
The WB has resolved differences in exchange rate regime and budgetary support with the devaluation of the currency.
Pakistan may not meet the criteria of having two and a half months import bill for forex reserves just yet; the condition is however expected to be relaxed after the International Monetary Fund (IMF) has signed in the programme.
IMF executive board is expected to take up Pakistan’s request for approval of the second loan tranche of $450 million next month under the $6 billion loan package.
Secondly, Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh claimed that exports of goods and services increased by 9.6 per cent in October 2019. “To provide easy working capital & funds for expansion, government & SBP will give additional Rs300b in subsidised financing to exporters & Rs30 billion will be given in cash instead of promissory notes issued against tax refunds,” he added as per the News.
The PTI-led regime is taunting achievement of converting current account deficit (CAD) into surplus to the tune of $99 million for October 2019.
This by itself may not be a good sign but Keeping in view Pakistan’s record on the economic front, there is a strong relationship between higher growth and higher current account deficit, so surplus CAD might result into further slowing down of the financial activities. The country recorded a current account surplus of 99 million dollars in October 2019. The CAD stood at $284 million in September 2019 says the News.
CAD in first four months of FY-19-20 amounted to 1.474 billion dollars while it stood at 5.567 billion dollars in the same period of the last fiscal year, CAD stood at $13.830 billion, while in FY-18 current account deficit stood around $19.897 billion.
Prime Minister Imran Khan has become publicly buoyant over the state of the economy. He claimed that the government had inherited many economic challenges such as reduced state of foreign exchange reserves, circular debt, and fiscal and current account deficits. He blamed the previous government for inflation. “I am proud of my economic team. During the last four months, our CAD came to an end. As a result, the rupee’s value increased by Rs4.”
In real terms however despite the reduction of CAD and the cheer provided by the WB and ADB, the economy remains on the brink.
The growth rate of manufacturing in September was negative 5.6 per cent and cumulatively over July to September it is negative at 5.9 per cent.
While the CAD has reduced the forex have increased only by $ 1 billion or in a ratio of 4:1 in comparative terms.
Thus the portends are ominous for growth which may remain between 2 to 3 per cent for the current fiscal but the government is likely to continue to tilt against the windmills to spin a politically convenient narrative.