In a monthly update on economy, finance ministry of Pakistan has released economic figures for Jul-March 20 in light of prevailing pandemic. The global growth is projected to decline by 3% while Emerging Asia posts 1% growth rate. Pakistan’s GDP growth projections are varying with -1.5% growth predicted by IMF. However, in light of recent figures, including support from IMF, ADB and G20, Pakistan Bureau of Statistics is expecting a better projection for 2020 in National Account Committee meeting to be held in May. The current report shows several positive indicators including better External accounts figure in light of increased exports (1.1%) and declining imports (-16.2%).
The economic report indicates that agriculture sector’s performance has been hampered by unfavorable weather conditions and pest attacks during first quarter of 2020. Punjab and Sindh witnessed widespread locust attack and rain fall during harvesting season which lowered wheat production. The agricultural credit also increased by 13.3% to Rs. 912 billion. To support agriculture sector during Covid-19, government has increased the wheat support price to Rs.1400 per 40 kg bag. With lower Urea prices, the ministry expects agriculture sector to improve with time.
Large Scale manufacturing growth declined by 0.9% on Month-on-Month basis while Year-on-Year decline was 1.15%. The cement sales rose by 7.1% during Jul-March 2020 with increase in exports of 25%. The Automobile Industry saw a decline of -47% in production and 46% in sales. Several LSM industries showed good performance from Jul-Mar 20 period including Textile (0.37%), Food, Beverages & Tobacco (0.71%), Fertilizers (5.88%), Leather (10.52%), Paper & Board (5.21%) and Rubber (4.74%) and Wood Products (6.2%). On the other hand, Automobile (-34%), Petroleum (-13.57%), Chemicals (-0.96%), Pharmaceuticals (-5.81%) and Electronics (-7.85%) showed negative growth.
Steps by Government and State Bank to support Industry in Covid-19 crisis
Following steps are taken by Federal government to support LSM and SMEs.
- New Stimulus for construction industry including amnesty scheme, tax benefits, subsidy of Rs.30 billion for Naya Pakistan Housing Scheme.
- Increase in allowance for advance payment for import material of manufacturing sector from $10,000 to $25,000.
- Several refinancing schemes for Small and Medium as well as Large industries by State Bank of Pakistan.
- Increase in credit limit for SMEs from 125 million to 180 million.
- Subsidized loans with easy installments for businesses to retain employees.
- Major cut in policy rate by SBP from 11% to 9%.
- Rs. 226.5 billion subsidy for Power sector to provide uninterrupted services to consumers and producers. 3 months electricity bills for hundreds of business owners to be bore by federal government.
Inflation in Pakistan on MoM basis is witnessing a decline since January 20 and is witnessing decline even in Ramadan’s initial period.
Table below shows that inflation in March 2020 dropped to 10.2% from 12.4% in February. The period of Jul-Mar 20 saw CPI inflation of around 11.53%.
|Actual||Inflation Rate CPI in Pakistan|
The monetary tightening policy of government resulted in several positive effects on fiscal performance of Pakistan.
- The fiscal deficit as percentage of GDP reduced from 4.6% to 3.7% during Jul-Mar 20.
- The balance of payments saw surplus of Rs. 104 bn against fiscal deficit of Rs. 474 bn in 2019.
- The Public Sector Development Fund (PSDP) saw rise of 5% from Rs. 284 bn to Rs. 392 bn.
- FBR’s tax collection increased by 13.3% from Rs. 2709 bn in 2019 to Rs. 3060 bn in 2020. Domestic tax collection increased by 17.4% while from imports declined by 4.9%. However, since March 2020, the partial lockdown has resulted in lowered tax collection for FBR.
During Jul-Mar 20, Pakistan has been able to reduce its fiscal deficit by a whopping 73% mainly due to decreased imports and nosedive of oil prices internationally. Exports grew by 1.1% while imports declined by 16.2% during Jul-Mar 20. Overall, the trade deficit reduced by 30.9%.
FDI and FPI
Despite the pandemic, FDI increased by $278 mn during March on YoY basis. The overall FDI increased by 137.3% during Jul-Mar 20 to $2696 mn from $905 mn in 2019. On the other hand, Foreign Portfolio Investment (FPI) saw continuous outflow since beginning of pandemic outside Pakistan. The net outflow of FPI during March 2020 remained $77.3 mn with major outflows from United States ($40.6 mn), UK ($14.5 mn) and Sweden ($8.2 mn). The foreign public portfolio divestment in March including T-bills, equity and Pakistan Investment Bonds (PIBs) reached around $1830 mn.
Read More: FPI Divestment in Pakistan during April’ 20
The remittances in Pakistan grew by 6% during Jul-Mar 20 and grew further during March (9%) despite coronavirus crisis. The total remittances during the period have reached around $17000 mn but is expected to be affected in coming months as financial crises keep hitting countries in Middle East and other countries.
Finance Ministry foresees negative impact of Covid-19 on Pakistan’s Economy
The report for Jul-March 20 period shows several positive indicators that Pakistan could have benefited from in 2020. However, recognizing the adverse effects of Covid-19 on global economies as well as Pakistan, it is expected that year 2020 will see negative growth rate in Pakistan. The economic downturns in Saudi Arabia, USA, UK, and other Middle Eastern countries will result in less FDI, FPI as well as remittances. The FBR tax collection will also face adverse impact along with government stimulus packages for Covid-19 relief.
However, continuous slump in oil prices and increasing pace of exports can help Pakistan in finding a thread to hold on to in this crisis. The loan moratoriums and reliefs from bilateral lenders will also have a good impact on slumping growth rate.