In August 2018, when the PTI government took over the Office after winning the general elections, Pakistan’s economy was ridden with a heavy foreign debt of more than US $ 90 billion, a large current account deficit of above US $ 20 billion, a wide budget deficit of 6.6 % of the GDP, and a large amount of total public debt equal to 70 percent of the GDP, 10 percent higher than the limit (60 percent) set in the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005, amended in 2017.
The exchange rate in July 2018 had come to Rs. 121.00 per one USD, as the caretaker government in May 2018 had let the overvalued rupee fall, since it thought that the policy of maintaining artificial exchange rate stability for years adopted by the PML-N government was not sustainable.
In August 2018, the foreign exchange reserves held by the State Bank were US $ 12 billion. To repay the foreign debt instalments and its interest, the government was required to pay almost US $ 7 billion per year.
In view of the above economic situation, to pay back the foreign debt instalments, to run the government affairs and maintain a reasonable foreign exchange reserves to pay for the necessary imports, the PTI government had to get loans worth US $ 7 billion from the friendly countries and US $ 6 billion from the IMF. To strengthen the economic position of Pakistan, the PTI government’s economic team has been working hard by focusing on further stabilizing the value of rupee, to correct the negative current account balance and increase the foreign exchange reserves by reducing the import of non essential goods and increasing exports by providing incentives to the industrial sector.
The government's foreign income remained higher than the expenditures with receipt of record-high workers' remittances, notable growth in export earnings, and no major growth in import payments
The government has also encouraged the foreign direct investment (FDI) in the country by providing CPEC related, and other incentives to the foreign investors. Special attention was also given to reform the FBR to broaden the tax base and improve the tax collection system to meet the tax collection targets to facilitate annual budget preparations and reduce the budget deficit. Efforts have also been made to limit the circular debt in the power sector by signing fresh accords with the private electricity producing companies. To meet power shortages, the government has also started to build new dams, hydropower and other power projects and it is also importing more LNG. To increase economic activity and growth the government has also encouraged the construction industry by giving them major incentives.
All the above mentioned reforming measures undertaken by the government are showing positive results despite the fact that the government has been facing difficulties due to the united opposition’s anti government campaign and street protests and the prevalence of the COVID-19.
While these factors have discouraged the foreign investment, these have also lowered the economic activity, thus lowering the economic growth, reducing the revenue generation, and increasing the unemployment. The revenue levels also suffered as the government had to provide the financial support to the poor families, whose earning members had lost their jobs due to the lockdowns.
However, despite the above stated hurdles, due to the rigorous efforts of the economic team of the government, Pakistan’s economy has overcome its major issues and it is back on the track. While most of the major economic indicators have turned positive, the international financial institutions are also talking positively about the revival of Pakistan’s economy. The IMF Mission led by regional chief Ernesto Ramirez Rigo in February 2020 said that Pakistan has made considerable progress in advancing reforms and continuing sound economic policies.
The IMF Mission Chief further said that the foreign reserves of the country continue to rebuild at a pace considerably faster than anticipated. Rigo said, the Inflation should start to see a declining trend as the pass-through of exchange rate depreciation (Rupee depreciation) has been absorbed (as the exchange rate is now stabilized around Rupees 160.00 equal to one US dollar), and supply-side constraints appear to be temporary.
Based on the latest assessment of Pakistan’s economy, the World Bank has stated that the balance of payments consequently swung to a surplus of 2.0 percent of GDP in FY20, and official foreign reserves increased to US$13.7 billion at end-June 2020, sufficient to finance 3.2 months of imports.
And, in FY20, the fiscal deficit narrowed to 8.1 percent of GDP from 9.0 percent in FY19. Total revenues rose to 15.3 percent of GDP due to higher non-tax revenue, as the central bank and the telecommunication authority repatriated large profits.
The above discussion indicates that Pakistan's economy has made a good start despite the coronavirus pandemic challenges as the country’s current account balance swung into surplus in July 2020. The government's foreign income remained higher than the expenditures with receipt of record-high workers' remittances, notable growth in export earnings, and no major growth in import payments.
Whereas the above mentioned successes achieved by the government in strengthening Pakistan’s economy are worth appreciation, analysts are emphasizing that the government should also pay equal attention towards controlling and lowering the high prices of flour, sugar, pulses, vegetables and fruit as the poor masses of the country have been hit hard by the ever rising prices. This should be done through a strict monitoring system, curbing the hoarding and ensuring that supply and demand situation of the aforementioned commodities remains in balance by the timely import of the essential commodities and not allowing the export of these commodities without catering for the domestic demand.
The writer is a former Research Fellow of IPRI, and Ex Senior Research Fellow of the SVI, Islamabad