Govt says economic recovery expected by end FY2020

Finance division claims govt’s extensive measures helped economy move progressively along adjustment path

ISLAMABAD: The government claimed on Thursday its extensive measures helped the economy to move progressively along the adjustment path and expressed the hope that stabilisation process and economic recovery was expected towards the end of FY2020.

A statement issued by the Finance Division said that the government was cognisant of challenges and “stringently focused” on resolving them particularly, reducing inflation, creating job opportunities and achieving high growth rate.

“The government is focusing on bringing improvement in the real sector growth through inclusive growth in agriculture, industrial and services sectors,” said the statement issued in response to reports regarding downward revision of growth by the World Bank.

Keeping in view the positive developments on major economic indicators, the economy was likely to achieve better growth prospects as against the projections of the World Bank, the Finance Division statement added.

The World Bank in its report ‘2020 Global Economic Prospects’ had forecast Pakistan’s growth rate during the current year at 2.4%, 3% in the next fiscal year and 3.9% in 2022. It said the growth decelerated in 2018-19, reflecting a broad-based weakening in domestic demand.

In addition, the report had described that significant depreciation of the Pakistani rupee resulted in inflationary pressures, monetary policy tightening restricted access to credit, curtailing public investment to deal with large twin deficits and budget deficit rose more sharply than expected.

Saudi Arabia, UAE likely to back Pakistan at FATF moot

The statement pointed out that during the fiscal year 2019, the slowdown in economy was largely attributed to various policy measures to manage the twin deficit crisis. Consequently, these measures helped contain demand pressures and contributed to import compression.

However, the outcomes of these measures were realised in the industrial sector, particularly the large scale manufacturing (LSM) sector, which witnessed a negative growth. At the same time, high input costs along with water shortages weakened agriculture sector’s output and hence, the drag in the commodity-producing segments spilled over to the services sector as well.

As result, the real GDP growth recorded at 3.3%, said the statement. It added that due to government’s extensive measures at the start of the current fiscal year, Pakistan’s economy was moving progressively along the adjustment path and stabilisation process; however economic recovery is expected towards the end of FY2020.

For growth in agriculture sector, the target production of wheat is 27 million tonnes, given by FCA in last meeting in October. In addition to uplifting the agriculture sector the “National Agriculture Emergency Programme” in coordination with all the provinces has been introduced and approval has been granted to 13 mega projects at a cost of Rs287 billion.

Agriculture credit disbursement target for FY2020 has been set at Rs1,350 billion. Agriculture credit disbursement has increased by 20% to Rs482 billion during July-November period of FY2020 against Rs402 billion last year, the statement continued.

To boost industrial sector, the government has been providing a series of subsidies and incentives to industrial sector. These include subsidies to industry on electricity and gas, export development package and it continued to provide Long-Term Trade Financing (LTFF) and Export-Refinancing Scheme (ERS) at subsidised rate.

Similarly, the Public Sector Development Programme (PSDP) release process is simplified and by January 3, 2020 Rs301.4b had been released to encourage construction-related industries, especially cement and steel.

In addition, cement dispatches growth of 6.55% during July-December period of FY2020. “This development will likely to stimulate the growth in the LSM in coming months,” according to the statement.

On the fiscal side, to control expenditures, the government was following austerity measures with complete restriction on supplementary grants. For export promotion several initiatives had been announced.

These initiatives include support to duty structure on raw materials and intermediate goods, improvement in mechanism for tax refunds, provision of electricity and gas at competitive cost, and making Pakistan a part of the global value chain.

The government’s various measures to stabilise the economy had already started to reap benefits in the form of sustained adjustment in current account deficit (CAD) and continued fiscal prudence. A brief review indicates that during July-November period of FY2020 CAD reduced by 72.9%, fiscal deficit contained at 1.6% of GDP (Rs686 billion) and primary balance posted surplus of Rs 117 billion (0.3% of GDP).

At the same time significant rise was recorded in FBR tax revenues to Rs2085.2 billion (16.4%) during July-December period of FY2020, improved ranking in ease of doing business, ranking among the world’s top 10 best business climate improver and ‘Stable” credit outlook to B3 from ‘Negative’ by Moody’s was an affirmation of the government’s success in stabilising the economy and laying a foundation for robust growth, the statement concluded.