Pakistan’s economy is likely to grow by 2% against the central bank’s projection of 3% in the current fiscal year 2020-21 and it is strongly expected to slightly shake next week when the bank is estimated to report a drop in receipt of workers’ remittances from overseas Pakistanis for the month of April compared to March.
“The inflows of workers’ remittances are expected to worsen in (the ongoing month) May,” the head of remittances at one of the top five banks said while talking to The Express Tribune based on the flow of remittances in his bank.
To recall, authorities concerned had estimated that the remittances for April would have been higher than $2.72 billion received in March 2021, as overseas Pakistanis had mostly sent higher remittances to their family members ahead of Eidul Fitr.
“I estimate that the remittances would drop by $100-200 million to $2.5-2.6 billion in April compared to $2.7 billion received in the previous month of March,” the banker said, adding that the overseas Pakistanis had taken a good start of sending higher remittances at the beginning of April. However, the flow slowed down by the month’s closing for unknown reasons.
“We (the bank staff) ourselves were surprised to note the drop in remittances when we closed the month of April for the remittances,” he said, and added that the inflow of remittances to his bank and at a country level usually remains almost similar.
If remittances received by his bank increase then the same situation is observed at country level and vice-versa.
“I take a bet that the workers’ remittances would be lower than the one received in March,” he emphasised, adding that the final figures would be released by the State Bank of Pakistan (SBP) next week that might prove his estimate for low receipts wrong.
The office-bearer said the flow of remittances in Pakistan has further slowed down during the current month of May. Besides, the 10-day Eid holidays in Pakistan and Gulf region (from where some 70% remittances come) is expected to worsen the inflows during the month.
Earlier, Prime Minister Imran Khan had thanked overseas Pakistanis on multiple occasions for sending strong remittances and additional unconventional remittances worth over $1 billion through Roshan Digital Account (RDA) in the past eight months.
To recall, the conventional remittances grew by a strong 43% to an eight-month high at $2.72 billion in March. Cumulatively in the first nine-month (Jul-Mar) of the current fiscal year 2021, the remittances grew 26% to $21.5 billion compared to $17 billion in the same period of the previous fiscal year, according to the central bank.
The strong growth in workers’ remittances was the only positive indicator in the domestic economy. Otherwise, almost “all other economic indicators are showing negative growth. If the remittances would fall then where will we (nation) stand?” Economist Dr Shahid Hasan Siddiqui said.
Earlier, PM Khan said that the overseas Pakistanis are running the whole country.
He highlighted that the agricultural economy, current account deficit, trade deficit, foreign debt and liabilities, external debt, foreign investment and per capita income; all the indicators were falling. The inflation reading has reached an 11-month high at 11.1% in April.
The government has failed to tax all incomes, particularly rich, as per its announcement. This government has also supported elite capture, as most of the benefits through legislation are gone to rich and poor have continued to pay higher taxes through a higher rate of sales tax at 17% on almost all goods and services and paying petroleum development levy which was announced to be abolished in the recent past.
“The economic indicators, including (decades low) cotton output, suggests Pakistan may achieve an economic growth of around 2% in the current fiscal year 2021 compared to the central bank projection for 3%,” Siddiqui said.
“The government is expected to report a negative growth for the previous fiscal year 2020 at 1% in the forthcoming Economic Survey 2021 compared to its current report for negative growth of 0.4% for the year (FY20),” he said.
Moreover, the economic growth for the next fiscal year 2022 would be around 3.5% against the government estimate of 4%, the expert said.
“This is only because of the large scale manufacturing (LSM) sector, which is showing some positive growth mainly due to the government’s focus on the construction sector. This, however, alone cannot pave way for the desired higher economic growth,” he added.
The economist said that the government has to focus on attracting foreign investment along with remittances to achieve higher economic growth.
“Foreign investment in different sectors of the economy would create new job opportunities and help increase foreign currency reserves. On the contrary, we have used remittances to finance trade and current account deficits,” he said.
He mentioned that the trade deficit has increased by $4 billion to $23.8 billion in 10 months of FY21 compared to $19.6 billion in the same period of the last year.
Similarly, the current account deficit becomes negative by the end of the current fiscal year on June 30, 2021 compared to a surplus of $1 billion in the first nine months.
“Next year (in FY22), current account deficit would widen by 4% of GDP…to the level last seen in 2016,” he said.
Siddiqui said that the central bank may leave the benchmark interest rate unchanged at 7% for another two months in May despite an 11.1% inflation reading in April.
“However, it may not resist increasing the rate in the next bi-monthly monetary policy (to be announced in July 2021),” he said.
The average inflation reading may be recorded at 9% for the entire fiscal year 2021 which would be in line with the central bank projection of 7-9%, the economist stated.
Published in The Express Tribune, May 16th, 2021.