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Pakistan Economic Survey 2020-21

FY21 Year of Revival

The government has launched the Economic Survey 2020-21 which shows that Pakistan has surpassed the annual growth target of 2.1 percent and touched 3.94 percent with the help in growth in manufacturing and services sectors. According to the Survey, current account posted a surplus of $0.8 billion, during July-April FY2021, for the first time in 17 years. Inflows of foreign exchange through the Roshan Digital Account (RDA) crossed the $1 billion mark. During July-April FY2021, workers’ remittances posted historically high growth of 29 percent and reached to $24.2 billion. Moreover, under Ehsaas Emergency Cash Programme, Rs179.3 billion has been disbursed. Approximately 14.8 million families have benefited from the programme. World Bank recognizes Ehsaas Emergency Cash Programme among top 4 social protection interventions globally in terms of number of people covered. Under Kamyab Jawan Youth Entrepreneurship Scheme, Rs8,566 million has been disbursed till April 2021 to the youth for various businesses.
In his foreword to the Survey, the Federal Minister for Finance, Shaukat Tarin, wrote: “[T]he economy is steadily progressing towards more sustainable and inclusive growth. The economy has witnessed a V-shaped recovery with 3.94 percent growth in FY2021 against the negative growth of 0.47 percent last year.”
Major achievements highlighting the economic performance during FY2021 are mentioned below:
Ø Pakistan was implementing stabilization policy post- crisis of 2017-18 and the economy was recovering from macroeconomic imbalances but Covid-19 slowed down the pace which was recovered initially but the advent of 2nd and 3rd wave brought significant challenges which were met by the timely prudent policies.
Ø Pandemics like Covid-19 are once-in-a-century event that devastate global economies. Pakistan did much better in coping up with the pandemic compared to many countries.
Ø Government took several important policy decisions: monetary and fiscal measures, smart lockdowns, rapid vaccination, etc. National Command Operation Centre (NCOC) as a single organization was made responsible to take key decisions in collaboration with the provinces. Situation was put under control due to government’s timely decision making, numbers of daily Covid-19 cases are presently on declining trend.
Ø Prior to Covid-19, the working population was 55.74 million. This number declined to 35.04 million which indicates people either lost their jobs or were not able to work. Due to prudent decisions by the government, working population reached 52.56 million till October 2020.
Ø Economy has witnessed a V–shaped recovery. The current economic recovery has been achieved without compromising internal and external stability.
Ø Manufacturing has witnessed broad-based growth as major sectors of LSM have shown significant improvement, i.e., Textile, Food Beverages & Tobacco, Non-Metallic Mineral Products and Automobile. First nine months of FY2021 recorded highest period wise growth of 8.99 percent since FY2007.
Ø Current account posted a surplus of $0.8 billion, during July-April FY2021 for the first time in 17 years.
Ø Inflows of foreign exchange through the Roshan Digital Account (RDA) crossed the $1 billion mark. During July-April FY2021, workers’ remittances posted historically high growth of 29 percent and reached to $ 24.2 billion.
Ø SBP’s foreign exchange reserves rose to $16 billion, four-years high.
Ø Keeping in view the significant performance pertaining to FATF conditions, potential of exports and e-commerce, Pakistan has been added into the Amazon’s seller list.
Ø FBR tax collection has witnessed a significant growth of around 18 percent during July-May FY2021 owing to the revival of domestic economic activity and ongoing comprehensive tax policy and administrative reforms.
Ø Primary balance remained in surplus at 1.0 percent of GDP, highest level through the first three quarters in 12 years.
Ø On 27th May 2021, PSX witnessed an all-time high daily trading volume with 2.21 billion shares traded in a single session.
Ø Due to its impressive growth, Pakistan Stock Exchange earned the title of being the best Asian stock market and fourth best-performing market across the world in 2020. (marketcurrentswealthnet.com).
Ø Profile of domestic debt has improved significantly during the tenure of the present government as short-term debt as percentage of total domestic debt has decreased to 23 percent at end March 2021 compared with 54 percent at end June 2018.
Ø Over 80 percent of the net borrowing from domestic sources was through medium-to-long-term domestic debt instruments (Pakistan Investment Bonds & Government Ijara Sukuk) during first nine months of FY2021.
Ø Pakistan has entered the international capital market after a gap of over three years by successfully raising $ 2.5 billion through Euro bonds.
Ø The policy rate remained unchanged at 7.0 percent which improved business sentiments and thus stimulating economic activities enabling employment to recover.
Ø During July-February FY2021, the two gas utility companies (SNGPL & SSGCL) have laid 143 km gas transmission network, 2,616 km distribution and 886 km services lines and connected 70 villages/towns to the gas network. During the same period, 304,573 additional gas connections including 303,243 domestic, 1,020 commercial and 310 industrial connections were provided across the country.
Ø Installed capacity of electricity increased to 37,261 MW during July-April FY2021 compared to same period last year, showing an addition of 1,289 MW. Likewise, its generation increased to 102,742 GWh showing an additional generation of 6,360 GWh during the period under discussion. The share of Industry in electricity consumption has increased to 26.3 percent in July-March FY2021 as compared to 25.5 percent in the same period last year.
Ø Cellular mobile subscribers (number of active SIMs) in Pakistan have reached 182 million at the end of March 2021 compared to 167.3 million by the end of June 2020, showing an increase of 8.6 percent in nine months of FY2021.
Ø At end March, 2021 broadband (BB) subscribers reached to 100 million. The total BB penetration in Pakistan stood at 47.6 percent in March 2021, registering an increase of about 19.7 percent as compared to end March 2020.
Ø Under Ehsaas Emergency Cash Programme, Rs179.3 billion has been disbursed. Approximately 14.8 million families have benefited from the programme. World Bank recognizes Ehsaas Emergency Cash among top 4 social protection interventions globally in terms of number of people covered.
Ø Under Kamyab Jawan Youth Entrepreneurship Scheme, Rs8,566 million has been disbursed till April, 2021 to the youth for various businesses.
Ø The 10 billion Tree Tsunami programme has achieved plantation of approximately 350 million plants during July-March FY2021 and about 100,000 daily wagers have been employed till March 2021. Cumulatively, over 800 million plants have been regenerated/planted in last two years.
Analysis
The Economic Survey 2020-21 compiled by the Economic Advisor’s Wing, administratively under the control of the Ministry of Finance, reinforced the recent macroeconomic data uploaded by the Pakistan Bureau of Statistics (PBS), operating under the aegis of the Ministry of Planning, Development and Special Initiatives, by providing much greater detail. The growth rate of 3.94 percent for the current fiscal year was upheld by the Survey sourced mainly to 4.43 percent growth in the services sector (accounting for 61.68 percent share in the Gross Domestic Product) against negative 0.55 percent growth in the previous year. Retail and wholesale trade, including aarhtees (agents who purchase from the small farmers many of whom they bankroll and sell at windfall profits to the end consumers) criticised by the Khan administration for their responsibility in fuelling food inflation, grew by 8.37 percent this year against negative 3.94 percent last year.
Pakistan is a net food importer today of various commodities, including wheat, sugar, edible oil, tea and lentils. Tarin lamented, adding that the government had passed on a limited raise in the international prices of these commodities while his solutions were appropriate: commodity warehousing, cold-storage facilities, strategic reserves and administrative infrastructure. There is a shorter gestation period in raising crop output and one hopes that he is successful in making Pakistan self-sufficient followed by exports of farm output.
Wholesale/retail trade component of the services sector is backed by farm/manufacturing/imports. Farm output (accounting for 19.19 percent of GDP) rose by 2.77 percent this year – a raise that compares unfavourably with a raise of 3.31 percent in 2019-20 which was on the back of 0.56 percent growth in 2018-19 – the first year of the Khan government. The Finance Minister pledged to target this sector in the budget for FY2021-22.
Manufacturing accounting for 12.79 percent of GDP grew by 8.71 percent against a very low base of negative 7.39 percent with large-scale manufacturing (LSM) accounting for 9.29 percent growth this year against negative 10.12 percent last year and small-scale grew by 8.31 percent this year against 1.50 percent last year. This significant growth was in spite of the massive decline in electricity generation, distribution and gas distribution (negative 22.96 percent) this year against a rise of 22.4 percent last year given the fact that energy is considered a key input for large-scale manufacturing sector.
The closure of shops and malls due to the pandemic accounted for a significant growth in the private delivery services (itemized under other private services) which registered a growth of 4.64 percent this year against 4.56 percent last year though bafflingly it recorded a higher growth of 6.17 percent in 2018-19. Transport storage and communications grew by negative 0.61 percent this year against negative 3.80 percent the year before, though financial and insurance services rose by 7.84 percent this year against an appallingly low 1.13 percent the year before.
The Survey citing the PBS stated that the working population was 55 million pre-pandemic which declined to 35.4 million, claiming that subsequent to the monetary/fiscal stimulus package 52.56 million were employed giving a shortfall of 2.44 million people. As per the Economic Survey document, the largest loss of jobs was in construction (80 percent), followed by manufacturing (72 percent), transport and storage (67 percent), wholesale and retail trade 63 percent.
Some data requires clarification including: (i) public investment rose by 38 percent July-March 2020-21 against negative 3.7 percent the year before, however, the stimulus package targeting private sector accounted for a private investment growth of only 6.6 percent against 10.3 percent the year before when growth was negative 0.4 percent; (ii) external debt repayments recorded at 1080 million dollars July-March 2021 compared to 1580 million dollars the year before. However, there is no mention of the debt relief initiative by G20 that Pakistan availed last fiscal year and is reportedly requesting again till the end of this year; (iii) total domestic debt rose to 25.5 trillion rupees by end March 2021 against 16.4 trillion rupees in June 2018 – a highly inflationary policy; and (iv) stock exchanges growth was negative 20.5 percent in 2018-19 and positive 29.5 percent this year as a consequence of the stimulus package, however, for the sceptics it is relevant to note that it was 52.2 percent in 2012-13, 41.2 percent the following year, and in negative territory in 2018-19 (negative 10) and 2018-19 (negative 20.5 percent).
While the government’s focus is on domestic growth as the engine of employment-generation and lower prices the public remains focused on inflation and poverty as the Ehsaas programme, better structured through the use of technology, is not enough to meet the growing ranks of the poor and vulnerable – critical data missing in the Survey.