Growth projections
The government’s GDP growth target for the ongoing fiscal year is 2.1%. While the World Bank sees a subdued recovery keeping the growth rate contained at 0.5% in FY20-21, the growth projection made by the State Bank of Pakistan in its report on the first quarters of the current fiscal year is quite generous. The central bank expects the real growth — one that takes into account inflation in its estimation — to fall somewhere between 1.5 and 2.5%.
As against the World Bank’s forecast that takes into account continued fiscal consolidation pressures and service sector weakness, the SBP’s estimate is based on the current trends of economic activity which have mainly resulted from two factors: one, the ease in Covid-induced restrictions in the wake of the containment of the first wave of the pandemic; and two, the suspension of the IMF loan programme allowing for a substantial cut in the central bank’s policy rates, stimulus packages for businesses making available cheap working capital, and the launch of an amnesty scheme related to the construction industry. And where the reigning pandemic has wreaked havoc with home budgets by contributing to the rise in poverty and unemployment, it continues to have a positive impact on a few macroeconomic indicators. For instance, the pandemic-related travel restrictions have led to increased inflows through banking channels, causing the foreign remittances to stand in excess of two billion dollars for seventh months in a row, thereby allowing the current account to post a surplus during these months.
What, therefore, puts the central bank’s optimism over growth in doubt is the uncertainty about the trajectory of the Covid-19 pandemic as well as an impending resumption of the IMF loan programme that would bring back the fiscal tightening measures meant to achieve economic stabilisation.
Published in The Express Tribune, January 10th, 2021.
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