The finance minister of Pakistan presented the Economic Survey of Pakistan for the fiscal year 2020-21. He said, that even though the world was hit with the pandemic, during the fiscal year, some policies helped Pakistan do better than many other countries in the region.
He said the ‘prudent policies’ like that of smart lockdown, effective fiscal and monetary policy coupled with the timely decisions taken by the formation of NCOC and its policies worked in the favor of the country.
Finance Minister Shaukat Tarin said, “when the COVID began, Pakistan’s labor class, ‘working population was 55.74 million’, and that had fallen to 35 million, meaning 20 million people got unemployed during the lockdown, but due to the policies of the PM Khan, 53 million got back to work by October 2020.
This he said led to the recovery of the economy. The government in June/July said that the growth of the country would be around 2.1 percent and the Inter-governmental organizations like IMF and World Bank had estimated even lower growth, Minister said.
This low growth target was surpassed by the government due to the incentives the government provided to the industrial sector of Pakistan, in terms of gas subsidies to textiles sectors and other subsidies given to the agriculture and the construction sector of the economy.
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The impact of the government’s timely and appropriate measures is visible in the form of a V-shaped economic recovery on the back of broad-based growth across all sectors. The provisional GDP growth rate for FY2021 is estimated at 3.94 percent, higher than the targeted growth of 2.1 percent, for the outgoing fiscal year.
The GDP growth is based on 2.77, 3.57, and 4.43 percent growth in the agriculture, industrial, and services sector, respectively.
The increase in remittances has proven the trust of overseas Pakistanis in Pakistan. Remittances clocked in at a record high, surpassing $26 billion during the year under review. The finance minister said they are expected to amount to $29 billion.
Agriculture
Pakistan’s agriculture sector met its growth target of 2.8 percent, and the next fiscal year’s target is at 3.5 percent.
Lately, as the economy opened, the food imports increased and it has put some pressure on the current account of the country, minister said. We have imported wheat, sugar, and Pakistan unfortunately has become a net importer of food.
The minister mentioned that the global crude oil price rose 119% and the government did not pass on the price to consumers. However, the wheat price rose 29% and had to raise it 29% as well, as we depend on the international prices.
He mentioned that the sugar prices increased 58 percent in the international market while we increased them by 18 percent, even after importing.
Tarin mentioned that the government was trying to control inflation and become a net exporter like in the distant past. “We have to enhance production; hence, the budget focuses on agriculture.”
The economic survey of Pakistan mentions many projects the government is doing for the agriculture sector. In order to uplift the agriculture sector, the National Agriculture Emergency Programme with a cost of Rs 277 billion is already underway. Under this Programme, 13 mega projects are under execution.
During FY2021, the government also announced the “Rabi Package” of Rs 5.4 billion to reduce the input cost for the farmers with the special intent to increase the production of wheat in the country.
In addition, the Minimum Support Price of wheat has been further enhanced from Rs 1,400 to Rs 1,800 per 40 kg to encourage wheat cultivation. Similarly, the agriculture credit disbursement target for the current fiscal year has been set at Rs 1,500 billion. These measures have borne the fruit in terms of significant growth in major and minor crops.
Tarin mentioned increasing strategic reserves to counter the hoarders in the economy and will improve the administrative structure of the economy.
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Industries
On the industrial front, there was a significant rebound in the economic activity, as Large-Scale Manufacturing gained traction.
The industrial sector according to the minister would be the focus of the next budget. He mentioned that the lower segments would be given top priority in growth strategy.
The Large-Scale Manufacturing (LSM) performance has been much favorable during July-March FY2021 and witnessed 8.99 percent growth as compared to a 5.1 percent decline during the same period last year
“Our focus will be on SMEs and exports,” the minister revealed. The number of loans given to 6-8 million SMEs reached 1.8 million, which is unfair to the poor of the country.
“We will shift from traditional exports and transform it along with fixing large scale manufacturing sector.”
The economic survey of Pakistan 2020-21 read, “The industrial sector has witnessed a remarkable turnaround largely because of accommodative policies by the government in the form of industrial support packages; relief to export-oriented industries, duty exemption under China-Pak Free Trade Agreement-II, electricity and gas subsidy for the export-oriented industries and tax exemptions for electric vehicles manufacturers.”
The government’s incentives for the construction sector provided the impetus for its allied manufacturing segments. The cement industry has been given special attention by reduction of Federal Excise Duty to Rs 1.5/kg from Rs 2/kg.
A National SME Policy Action Plan 2020 has been approved to provide much-needed support to SMEs. These measures enabled the resumption of business activities. The strong growth in the construction and LSM sector is likely to further broaden the recovery through the spillover effect.
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Fiscal side
Talking about the FBR revenue, collection, the minister said that it has reached 4.2 trillion in 11MFY21, an increase of 18 percent YoY. Since March MoM growth is around 50-60 percent, which means that we would exceed the target.
The economic survey read, “On the fiscal side, a substantial increase in tax collection and effective management of expenditures helped in containing the fiscal deficit as a percentage of GDP, while the primary balance continues to remain in surplus.”
It added, “The fiscal performance during (July-March) FY2021 shows that the fiscal consolidation policy helped in achieving fiscal discipline, increasing revenues and controlling expenditures.”
The non-tax revenues stood at Rs 1,227.6 billion during July-March FY2021 against Rs 1,324.4 billion in the same period of last year, showing a decline of 7.3 percent. The decline is mainly attributed to the absence of a one-off renewal fee for GSM licenses from telecommunication companies.
The Economic Survey mentions that the fiscal policy measures are mainly focused on relief measures to support businesses and to protect vulnerable segments of society. Simultaneously, the government is focused on containing the fiscal deficit at a manageable level and keeping the primary balance at a sustainable level.
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Growth focus
Tarin said he had told the prime minister it was time to focus on sustainable growth “until we go to 5-8pc GDP growth”.
Minister said, “We will do interventions and take care of the poor. The poor man has been crushed in this stabilization phase because the dreams we have shown them have been of a trickledown economy. And this can only happen when growth is sustainable and continuous for 20-30 years.”
“We need to enhance exports, FDI, and maintain remittances to increase the inflow of dollars,” he added.
“We want to make surplus food and would like to grow the housing sector.” IT is growing at 50% and the government wants it to grow at a rate of 100% next year.
The minister quoted Indian Figures and said that we should be able to follow them to at least a proportion of their growth rate.
The Economic Survey read, “Private Consumption has a significantly large share in GDP. This large share implies that Pakistan’s economy is a consumption-driven economy. Better consumer confidence can influence domestic production by increasing demand for durable. Growth in private consumption remained 17 percent in FY2021 as compared to 4 percent last year. “
Tarin said the dream of the Trickle-down economy has not worked for the poor in the country as the economic growth is not sustainable unlike in China, India, and Turkey.
For the poor, these stabilization policies don’t mean anything.
According to the document, the current growth can be attributed to the government made better management in controlling the pandemic which kept businesses going on and confidence high in FY2021; Fiscal Stimulus of Rs 1.24 trillion along with monetary support given in the pandemic; and due to quicker vaccination which supported economic recovery earlier than expected.
Talking about the international capital market Tarin said, Pakistan entered the international capital market after a gap of over three years by successfully raising $2.5 billion through a multi-tranche transaction of 5-, 10- and 30-year Eurobonds under its first-ever Global Medium Term Note Programme
Talking about debt, he said that as of end-March Pakistan’s total debt is Rs38 trillion, and Rs25 trillion is local, and almost Rs12.5 trillion is foreign debt, an increase of Rs1.67 trillion over the last year, as by June 30th the debt was Rs36.4 trillion. This growth is half the growth between the two preceding years.
Refinancing risk of debt portfolio reduced significantly during the tenure of the present government. Short-term debt as a percentage of total domestic debt has decreased to around 23 percent at end-March 2021 compared with 54 percent at the end of June 2018, the survey read.
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Development Programmes
15 million families facilitated under Ehsaas, Tarin said, adding that it has been rated one of the best programs in the world by the World Bank. Emergency cash was given to all these families.
Prime Minister introduced the Kamyab Jawam Programme and 8500-9000 people have benefitted so far.
During the fiscal year under review, one billion trees have been planted. All credit rating agencies including Moody’s, Standard & Poor’s, and Fitch reaffirmed their support, which means the stabilization program has succeeded.
According to the economic survey, Under Ehsaas Emergency Cash Programme, Rs 179.3 billion has been disbursed. Approximately 14.8 million families have been benefited from the program. World Bank recognizes Ehsaas Emergency Cash among the top 4 social protection interventions globally in terms of the number of people covered.
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Under Kamyab Jawan Youth Entrepreneurship Scheme, Rs 8,566 million has been disbursed till April 2021 to the youth for various businesses.
(This is a developing story and will be updated accordingly)