By Hassan Habib
Unlike 2020 in which lukewarm economic activity was witnessed, the outgoing 2021 remained happening year for the economy. The fear of COVID-19 pandemic subsided to a great level because of mass vaccination drive by the Government.
Just like the global economy, Pakistan also showed signs of recovery from COVID pandemic in 2021, but despite showing impressive GDP growth numbers rising twin deficits and inflationary pressures clearly showed that it remained a difficult year for common man.
Unlike 2020 in which lukewarm economic activity was witnessed, the outgoing 2021 remained happening year for the economy. The fear of COVID-19 pandemic subsided to a great level because of mass vaccination drive by the Government. Surprisingly Pakistan dealt the COVID-19 pandemic slightly better than the regional countries like India and Bangladesh and because of this the exports and especially of textiles showed robust growth.
However, revival of economic activities globally spurred a demand and as a result the prices of oil & gas, coal, edible oil and steel increased phenomenally in the international market. As a result, the inflation in the country already reached 11.5 percent in first five months of the FY2022.
Sajid Amin Javed, an economist, says that the economy returned to growth trajectory but unfortunately it brought no respite for common man. He said prices of all essential food items including wheat and sugar, in which the country is self-sufficient, gone up. “The double digit inflation is not just import driven, prices of all locally produced items gone up,” he remarked.
Regarding Government’s claim that increase in car sales and construction activities, rush at restaurants shows that economy is on the right path, Sajid Amin said that it also indicates inequality in the society because huge crowd also witnessed on the Utility Stores and Sassta Bazars who for mere 10 to 20 percent discount wait for hours to purchase bare necessities.
Just like past, the growth momentum in the country is consumption and import based and that’s why it already showing signs of overheating which also mentioned by Finance Minister Shaukat Tarin. “We need to slow down the growth momentum to make it sustainable, he remarked. The Current Account deficit of the country already reached $7 billion in first five months of FY22 whereas it was surplus by $1.88 billion in the same period last year.
The steep rise in current account deficit is mainly because of trade deficit which already reached $20.6 billion. Though the exports showed an impressive growth of 27% but it was totally overshadowed by imports which up by 70% in first five months of FY22 to reach $33 billion. The remittances in the country though rose by 9.7% to reach $12.9 billion in five months of FY22 but still they’re unable to finance the C/A deficit which badly hit by massive trade deficit.
The breather given by IMF during COVID pandemic phase is also over. To appease the IMF, the PTI Government already increased the electricity second time by Rs 1.39 per unit. Apart from this through a Finance (Supplementary) Bill, 2021 and State Bank (Amendment) Bill 2021, the Government withdrawn tax exemptions of Rs 343 billion and give autonomy to the SBP, which was demanded by IMF for long time.
The IMF now likely to approve two tranches of over $1 billion in its Executive Board meeting which will take place in second week of January 2022. Former Finance Minister and eminent economist Dr Hafeez Pasha in an TV interview admitted the fact that the Government was able to protect common man from withdrawal of tax exemptions but it will yield only Rs 200 billion to Rs 225 billion, which will be not enough to meet the shortfall in Petroleum Levy target of Rs 610 billion.
He said it next six months even if the Government would charge full PDL its collection will not exceed beyond Rs 340 billion. “What I am fearing is that IMF may demand other revenue measures from the Government because in my opinion revenue collection by FBR even if cross the target the increase will not be beyond Rs 220 billion,” he remarked.
To meet the rising import bill, the Government already borrowed $3 billion from Saudi Arabia on very hard terms and conditions, but still unable to control the rupee depreciation which reached over 10 percent in last one year. The buying spree of dollars already put heavy pressure on the exchange rate which reached over Rs 176.
Economic sanctions on Afghanistan after the fall of Ashraf Ghani regime in the hands of Taliban also made dollar scarce in the open market where dollar trading over Rs 180. Because of this the hawala and hundi business of dollar again on the rise. Economist Sajid Amin believed that whenever panic created in the market or regulatory framework weakened, parallel markets created to do businesses like hawala and hundi and same thing happening in Pakistan as well.
According Economist Sami Ullah Tariq the first half of the year was full optimism and second half remained full of challenges. “The Pakistan Stock Exchange bench mark KSE-100 Index at after reaching to a level of over 49000 points closed around 44600 which means the growth remained flat and same happened with Rupee which after making a gain of 7 to 8 rupees took a heavy battering in second half to close at Rs 176” he remarked. In 2021 the Pakistan Stock Market received a setback when it was downgraded in MSCI Index from Emerging Market to Frontier Market.
Economist and Spokesman of Ministry of Finance Muzzammil Aslam was of the view that the growth momentum started in 2021 is on strong footing and Government making all measures to make it sustainable. “We’re exploiting our indigenous resources and especially focusing on agriculture to reduce the import bill and make the economy self-sufficient in food and other essential items”, he said. Muzzammil said that after a long time the exports started to pick-up. He said in last one year the IT exports increased by over $1.5 billion to reach $3.5 billion. He said because of Government policies the bumper crops of wheat and sugar harvested. Whereas after a long time cotton crop likely to increase by 20% to cross mark of 6 million bales. “This financial year for the first time exports will cross $31 billion which will be a landmark achievement.
Regarding inflation, he said in second half prices of petroleum products, coal, LNG, edible oil and steel almost doubled and all the countries which import these items facing high inflation. He admitted the fact that in urban areas salaried or fixed income groups feeling the heat, but dispel the impression that people in rural areas affected by inflation. “Because of the bumper crops farmers are able to purchase motorcycles, tractors and other luxuries,” he observed. He said increase in remittances and investments in Roshan Digital Accounts by overseas Pakistanis showed that the economy is going in the right direction.
Economist Sajid Amin however holds a different view. He said that despite bumper crops, a very long and big protest was held by the farmers. He said the academia and the Government has to find out who is purchasing tractors and motorcycles. “May be the motorcyles have been purchased by the jobless people who are working for Bykea or Food Panda and apart from this because of poor public transport system motorbike is become a necessity,” he added. Sajid Amin also mentioned that almost 90 percent of farmer holds less than 12 acres and may be the tractors and other agriculture machinery has been purchased by the big feudals and corporate farmers.
According to Sajid Amin the biggest dilemma the PTI Government is facing loss of ‘Policy Credibility.’ In a country where people facing over 11 percent inflation and joblessness, the Prime Minister, ministers and other Government functionaries declaring the country cheapest in the region, then no one willing to believe them.
Pakistan Rupee Exchange Rate