Daily Times

The present government came into power in August 2018. In August 2018, Pakistan’s economy was suffering from some major imbalances and vulnerabilities. For example, according to the State Bank of Pakistan’s Second Quarterly Report for the Financial Year (FY) 2017-18, risks to overall macroeconomic stability had increased due to widening imbalances in the country’s balance of payments. The export industry was in distress from long standing structural constraints, that reduced the debt repayment capacity.

The external account was a matter of concern from the macroeconomic stability standpoint, as Pakistan’s balance of payments continued to reel under the pressure of surging imports. The tenure of the previous government, from 2013 to 2018, witnessed a skyrocketing current account deficit as it increased from $2.5 billion in FY13 to $18.9 billion (5.8 percent of GDP) in FY18.Pakistan’s power sector circular debt on 30 June 2018 stood at Rs1.032 trillion (Payables of Rs499 billion and Rs533billion loans of power sector parked in Power Holding Private Limited (PHPL).

Whereas Pakistan’s total debt and liabilities were Rs29.861 trillion or(86.8 percent of GDP)on June 30, 2018, its external debt and liabilities (EDL) peaked at $95.097 billion on June 30, 2018, posing a serious threat for the country on the repayment of its foreign obligations, which, on the average, are $7.4 billion,(33.6 percent of the GDP), including the principle amount of $5.186 billion and interest payment of $2.293 billion, to be paid in each financial year. While Pakistan’s inflation in May 2018 was 9.11 percent, its Foreign Exchange Reserves on 30 June 2018 were $16 billion.

To correct the external and internal imbalances in the economy, this government’s swift and decisive policy actions since the start of the current fiscal year, including resource mobilization, completion of the IMF programme, adoption of the austerity measures, and monetary policies have helped in stabilizing the economy considerably. These measures have helped the economy to reverse large external and internal imbalances. The country is also coming out of Coron virus related adverse economic slowdown. In view of the foregoing, following encouraging economic indicators are quite visible.

With the intense efforts of the government, the revenue collection in the current financial year has improved. The FBR collected Rs 411 billion against Rs 398 billion target set for June 2020. And Rs 300 billion were collected in July 2020 against the target of Rs 243 billion. Following are the other major economic indicators. The inflation has come down to 9.3% in July 2020 from 14.6% in Jan 2020. Exports have increased by 5.8% in July 2020 after witnessing a decline in last 4 months. Imports have decreased by 4.2 %.

In the last two years, the Current Account Deficit (CAD) has been reduced from $18.4 billion in Fiscal Year 2017-18 to $ 3.2 Billion in Fiscal year 2020, which is a colossal achievement. This has been done by increasing the exports and decreasing the imports in a major way. In the first half of FY2020, the fiscal deficit has been reduced to 2.3 percent of GDP, from 2.7 percent in the first six months of FY2019. This fiscal adjustment was achieved through increases in domestic revenue collections and slower growth in non-interest recurrent expenditures.

The foreign remittances have increased by 6.35 % as compared to the $ 23.12 billion received in 2019. A boom in the construction industry in the short term is expected due to recently announced Amnesty scheme and better indicators in this regard are already visible

The Forex reserve has stabilized mainly due to COVID 19 related foreign debt in flows. These reserves stand at $18.9 Billion on 24 July 2020. The foreign remittances have increased by 6.35 % as compared to the $ 23.12 billion received in 2019. A boom in the construction industry in the short term is expected due to recently announced Amnesty scheme and better indicators in this regard are already visible.

Based on the above mentioned positive developments in Pakistan’s economy, the Moody’s Investors Service, one of the world’s top three credit rating agencies, on 22 August 2020, reaffirmed Pakistan’s stable outlook, citing macroprudential policies implemented by the government, meaning thereby that Pakistan is capable of paying back its foreign debt. This positive outlook of Pakistan’ economy indicates that in the coming years, with the expected end of the corona epidemic and no lockdowns, a lot of the economic activity in the country will be generated that would enhance the economic growth.

In the remaining three years of its tenure, it is time for the government to focus on increasing the agriculture and industrial production to enhance employment and exports and earn foreign exchange and sending well trained man power abroad to bring additional remittances to boost Pakistan’s foreign exchange reserves to spend on paying back loans, welfare of Pakistani people and strengthening Pakistan’s defence. Moreover, the CPEC related fresh investments made by China and additional investments likely to come due to Pakistan’s improved image abroad would also add to Pakistan’s economic growth.

Due to these expected achievements, it is likely that in next three years, gradually, the rupee against the dollar will further stabilize, inflation will further reduce, commodity prices will fall, and the government will also have the fiscal capacity to increase pay, pensions and a minimum salary of the working class. With these positive developments, the people of Pakistan are expected to get a major economic relief after patiently bearing the economic hardships in the initial two years of this government. Hence, this healthy position of Pakistan’s economy is certainly a good news for the people of Pakistan.

The writer is a former Consultant and Research Fellow of Islamabad Policy Research Institute (IPRI), Islamabad and Senior Research Fellow of Strategic Vision Institute (SVI), Islamabad