Nowadays, a Pakistani layman is bombarded with news regarding the worse condition of the country’s economic affairs. Analysts are continuously trying to prove that PTI government has failed to revive the country’s economy.
But, is the situation really that bad?
It is not, in fact it is the other way around.
Slowing down of GDP growth rate, inflationary pressure, PKR depreciation, etc. are the inevitable consequences of much-needed economic adjustments and stabilization measures. The fiscal consolidation and monetary tightening policies adopted by PTI government are for a soft landing of the economy crash.
Now the question is ‘what are the outcomes of these reforms and policy measures?’ Here are a few:
There is a massive 35% reduction in Pakistan’s trade deficit for first quarter 2019-20. USD 5.73 billion is the trade deficit of July-Sep 2019 as compared to USD 8.79 billion as of corresponding period last year. Moreover, around 25% decline in trade deficit recorded in September 2019 as compared to same month of previous year.
This happened because of a sharp decline in imports and increase in exports for the period. Non-essential luxury imports are on decline; however, the duty-free imports of raw material and machinery witnessed a growth of 7%. Hence, trade deficit has been reduced without hampering the economic activity in the country. Allowing duty-free imports of machinery and raw material will boost the industrial growth in the current year.
Exports volumes are on the rise; however, they need a price push as unit price declined. In FY 2019-20, Pakistan’s total export quantity increased by 12%. Textile industry witnessed 26% growth in volumetric terms because of getting regionally competitive energy tariffs. However, due to a significant decline in textile prices globally, this increase in export volumes did not translate into substantial value terms. Nevertheless, the textile sector has become viable now, after remaining in the red for a decade.
Construction industry is also picking up as both the local sales and export numbers of cement have registered double-digit growth. Around 11.5% increase in domestic consumption and 11.7% increase in exports recorded for September 2019 as compared to September 2018.
An upsurge in the inflows of foreign remittances is also contributing towards the economy’s revival. 18% YoY and 3% MoM increase recorded in remittances for September 2019.
Significant improvement in FBR tax collections with double-digit growth for first quarter FY 2019-20 (14.8% increase recorded vs corresponding period last year). YoY September’s tax revenue collection shows 17.6% growth as compared to same month previous year. Number of income tax returns has also increased by 14% in Q1 2019-20 as compared to corresponding period last year.
Country has received a net foreign investment of around USD 328 million in debt instruments (primarily T-Bills) for July-Sep 2019, making it the highest ever foreign portfolio investment. Pakistan is fast becoming an attractive option for world investors, that has never happened before. USD 2 billion foreign investment in debt instruments is expected by the end of current fiscal year. The increase in investment is due to high rate of return, increase in benchmark interest rate, return of stability in rupee-dollar exchange rate, tax relaxation for non-resident companies, and reduction in withholding tax from 30% to 10% on investment in T-bills.
SBP profits are expected to be more than PKR 400 billion in FY 2019-20 (significant increase as compared to previous years). The capital buffer has also stabilized because of improvement in foreign reserves.
Circular debt per month declined by 32% in FY 2018-19 as compared to FY 2017-18. It has further decreased by 54% in FY 2019-20 as compared to previous year.
Some huge foreign direct investments are also in the pipeline: USD 5 billion investment by UAE in oil refinery project; USD 21 billion investment by Saudi Arabia in various projects in Pakistan etc.
Pakistan has met all the six quantitative targets of IMF by first quarter-end (July-Sep 2019).
As per economic experts, the inflation will dip down in the coming months.
KSE-100 index is on upward trajectory showing an increase in investors’ confidence.
Pakistan is now moving from a consumption-driven import-based growth model to an exports-oriented domestic-productivity model.
Global financial institutions and agencies have appreciated PTI Government’s efforts for economic revival. World Bank, IMF, Asian Development Bank, Sina Finance (China), etc. to name a few. According to them, Pakistan’s economy is showing signs of recovery and stability due to various reforms and policy measures implemented by current Government. The fiscal consolidation, monetary adjustment policies, and austerity measures have been lauded. Investors’ confidence has restored that will boost the foreign capital inflows and foreign direct investment in Pakistan.
Pakistan has emerged as among the top 20 countries in the world by introducing reforms in ease of doing business.
The transition from a fixed exchange rate to a market-driven exchange rate has proved its significance through stability in Pakistani rupee and healthy external accounts. The rupee-dollar exchange rate has been stable since July 2019. Business confidence has started to rise.
The second phase of CPEC has started that involves industrial and socio-economic development. Special economic zones (SEZ) will be established in various regions of the country. Agriculture and trade will be the key focus areas of the 2nd phase. This will enhance foreign direct investment (FDI) in the country.
Pakistan’s economy is shifting towards import-substitution industrialization via supporting the domestic businesses and export-led sectoral development. Stabilization measures of current government are yielding results and their results will be visible in the coming years. Macro stabilization and success on external sector are evident from the economic stats.
Direction is right, policies have been implemented and Pakistan’s economy is finally heading towards the right course. Hence, for the conclusion, the PTI Government is right on track at the moment.