Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

In an article published in Dawn of SakibSherani an economist, he has tried to paint the current economic developments as totally positive? I know him from the days when he was serving ABN Amro. His version of economy is based on following concepts.

The payment system managed by SBP is efficient, Skilled and unskilled labors are getting jobs, A vibrant tech ecosystem is growing, Nadradatabase is getting refined, Pakistanis as a generous giving nation are getting medical treatment under ShaukatKhanum Memorial Trust hospitals, SIUT, Indus Hospital, and the centers for the needy run by the Edhi Foundation The resilience of Pakistanis has been well noted globally. Despite the most challenging economic, social or security conditions over a protracted period of time, millions of the country’s citizens have plodded on, not just earning an income for themselves and supporting their families in the process, but starting social initiatives that have immeasurably helped local communities too.

Likewise Head or Research of ArifHabib investments (that I headed in 2008) has also painted a rosy picture of Pakistan’s economy with its stock Exchange crossing highest number but one should not forget that Stock Exchange indices are not the barometer of any country’s economy.

I am unable to understand that what they wanted to say. This is like such that we see daily on media withhighly polarized views, Jokers sitting like IrsahdBhatti on one side and seasoned commentators like MujiburShami and MajidNizami on the other side

However economy is a science and not just technical advancements. Actual common man of Pakistan can tell whether the government is pursuing right policies on the economic front or otherwise.

Pakistan has achieved steady growth since 2013 and crossed 5.8% in 2018. However in the aftermath of a credit facility agreement with the IMF, Economic growth was estimated to have fallen to 3.3% in 2019 from 5.5% a year earlier and 0.7 percentage points below IMF’s previous estimate. This was mainly due to measures taken by authorities to counter macroeconomic imbalances. Growth is expected to slow further to -1.5% in 2020 due to the outbreak of the COVID-19 and may pick up to 2% in 2021, according to the updated IMF forecasts.

The start of 2019 was marked by Pakistan’s foreign exchange reserves falling below the USD 7 billion mark (less than one month of import coverage), raising concerns over the country’s ability to honor its financial obligations. Reserves were boosted later in the year as the United Arab Emirates and Saudi Arabia provided financial assistance. The IMF approved two new tranches of loan under the Extended Fund Facility first in July 2019 and another in February 2020, further helping the country shore up its foreign reserves. According to data from the State Bank of Pakistan, foreign reserves rose above USD 20 billion as of Nov 2020. The State Bank also said the country may no longer need international financing if reserves continue to rise later in 2021.

Nonetheless, general government debt continued to rise at the same time, reaching 76.7% of GDP in 2019, against 71.7% a year earlier, partly because of currency devaluation. The latter did not boost exports but helped contain imports to the country. However, imports also fell due to a slowdown in investment and industrial activity. Nonetheless, the IMF foresees minor debt fluctuations; it is expected to be 78.6% in 2020 and 76.1% in 2021. The fact that Pakistan’s external debt continued to accumulate and it has to borrow more dollars to repay its old loans suggests that the country has actually been caught in a debt trap. Since July 1, 2018, the government has accumulated $23.6bn in foreign debt. The external debt rose by $10.7bn in the last financial year and $8.4bn in 2018-19 with debt servicing becoming the largest budget expense.

Lower imports helped bring current account deficit down to 5% in 2019, a rate that is expected to fall further to 2.4% by 2021. A weaker rupee also resulted in a higher inflation rate, which rose to 6.7% in 2019 from 3.9% a year earlier. Inflation is anticipated to peak at 11.1% in 2020 before declining gradually to 8% in 2021.

The fiscal deficit widened to 8.8% of GDP from 6.4% in the previous fiscal year as tax collection remained weak while non-tax income fell because of the exchange rate depreciation. Pakistan’s economic recovery is expected to quicken after 2020 as structural reforms in tax collection and competitiveness take effect and international demand for Pakistani goods pick up. This is conditional on stable oil prices and reduced geopolitical risks, according to the World Bank.

Although the poverty rate has declined significantly since the early 1990s, the latest figures by the Ministry of Planning Development and Reforms show that 29.5% of the country’s population is living below the poverty line. The unemployment rate was 4.1% in 2019, against 5.6% in 2018, but the level of underemployment remains very high and much of the economy is informal. The IMF expects the unemployment rate to remain stable in the next two years despite the negative economic impact of the COVID-19 pandemic; the rate should attain 6% in 2020 and 5.1% in 2021.

The agricultural sector is the main pillar of the Pakistani workforce. It contributes to 22.9% of the GDP and employs 41.4% of the active population. Wheat, rice, cotton, sugarcane, fruits, vegetables and tobacco are among the major crops. Cattle livestock farming remains important as the country is among the top 10 beef and veal producers in the world. However, its contribution to exports remains limited after years of export ban. Pakistan is the 4th largest cotton producer in the world and has abundant natural resources, mainly copper, oil and gas.

The industrial sector contributes to 18% of the GDP and employs 23.7% of the population. The Services sector contributes to 53.1% of the GDP and employs more than one-third of the workforce (35%). The IT sector is growing rapidly, contributing around 1% of GDP and accounting for 3.5% of exports but has drastically slowed down at the end of 2020. Remittances from Pakistanis working abroad represent a considerable financial income for the country.

World ranking of Pakistan in economic freedom is 131 out of 250 countries. In Business environment ranking it stands at 82.

Hence with higher fiscal deficit of 9% of GDP (Rs 3 trillion) and payments against accumulated debts all its positive indicators have gone on the back. We want PTI government to continue for 5 years but for that it has to deliver.


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