Economy facing challenges as slowdown bites

Pak economy enters into low growth era as it implements economic reforms

Pakistan economy has again entered into a low growth era due to lack of positive catalysts on economic front despite signing a $6 billion financial bailout package with the International Monetary Fund (IMF) as last ditch effort to put the country on right track.
The 39-month Extended Fund Facility by the IMF is expected to unlock approximately $38 billion of financial assistance to Pakistan in next three years that will help the country to meet its financing needs as well as put the economy on the path of sustainable and balanced growth and increase per capita income in coming years.
The IMF programme is aimed at reducing economic vulnerabilities and generate sustainable and balanced growth by focusing on decisive fiscal consolidation to reduce public debt and build resilience while expanding social spending in next three years.
The fund has also suggested a flexible and market-determined exchange rate to restore competitiveness and rebuild official foreign exchange reserves, which stands at $8 billion. It has also advised to eliminate quasi-fiscal losses in the energy sector as well as proposed strengthening of institutions and enhance transparency.
There is no second opinion that Pakistan's economy is at a critical juncture and most of the analysts and economists underline the need for an urgent policy action or introduce economic reforms to put the country in right direction so it could meet the needs of a rapidly growing 220 million-plus population. However, some experts have a doubt that the IMF programme will help Pakistan to overcome its economic problems and put the country on road to progress.
Elaborating, these experts said the IMF programme will have serious economic repercussions such as slower growth, higher inflation, more unemployment, rupee devaluation and hike in utilities tariffs that will make the life of a common man miserable and increase poverty in the country.   
Dr Ashfaq Hassan Khan, member of the Economic Advisory Council, which is headed by Prime Minister Imran Khan, is a very vocal person against the IMF programme and said the Extended Fund Facility is not in the interest of Pakistan and its going to be very painful for the economy.
"We need to learn the art to live without the IMF," Dr Khan said.
Initially when the PTI government took charge in last August, the economy was in right direction despite facing huge challenges, he said.
"Now the Prime Minister Imran Khan is learning the art to run the state affairs. He earned success on many fronts such as foreign affairs, but he is still struggling to gain grounds on economic front," Dr Khan said.
To a question about the economic outlook in current financial year 2019-20, he said gross domestic product (GDP is expected to hit 2.4 per cent - the lowest in a decade, inflation will be ranging between 12 per cent to 14 per cent and fiscal deficit will be settling somewhere 8 per cent to 8.5 per cent of GDP.
On a positive side, he said current account balance will be improving because of slowdown in economy, foreign exchange reserves will be improving as Pakistan will enter bond market to raise funds and will also approach multinational donors for more assistance.
"Overall, Pakistan economy will remain under pressure in areas of jobs creation, growth and poverty alleviation," Dr Khan said.
State Bank of Pakistan, the central bank, sees average inflation at 11 per cent to 12 per cent in current financial year 2019-20 as against 7.3 per cent in fiscal year 2018-19.
Last month, it also hiked policy rate by 100 basis points to 13.25 per cent at a time when most of the central banks worldwide cut interest rates amid slowdown in global economy.
Muzammil Aslam, managing director, Next Capital, sees a gloomy economic outlook and said slowdown in economic growth and higher inflation will drive the economy towards stagflation in current fiscal year. "Inflation will stay in double digit," he said. 
To a question, he said Pak rupee will remain stable and no major fluctuation is expected in near future.
"The rupee will be normalised and sharp upturn and down turn are unlikely. Now, we may expect 4 per cent to 6 per cent average annual devaluation," Aslam said.
About the possible challenges for the economy, he said twin deficit and its financing will remain a key hurdle for the government.
Regarding positive economic indicators during the current fiscal year, he said external financing is no more an issue for the government after the IMF deal and the country is likely to receive more foreign direct investment in coming years.
"Diversified tax collection, structural reforms and independent institutions will be a big plus for the economy in months to come due to initiatives led by Imran Khan-led PTI government," he said.
Iqbal Dawood, president of the Pakistan Business Council, Dubai, sees a challenging time on economic front and advised the government should adopt a cautious approach to expand tax base in the country.
"I can see a tough time ahead. As our culture is not familiar with western type of taxation, I will suggest the government should implement its tax reforms gradually. Otherwise, it will result in dissatisfaction and also hurt the economic stability in the country," he said.
"If the government introduced its tax reforms in an effective way and implement them successfully, then we can obtain good result and generate more revenues by bringing more people into tax net. Otherwise, it will cause destabilization," he added.
About the outlook of Pak rupee, he said it is expected to be remain stable and sharp fluctuations are unlikely.  "I think it will further devalue over a period of time. It may stabilise at 170 to 175 against the US dollar," he said.
To a question about the challenges to the economy, he said the government will have to keep a tight check on consumer prices and unemployment.
"Jobs creation and inflation are two big challenges for Imran Khan and it is difficult to obtain good result in this regard," Dawood concluded.
- muzaffarrizvi@khaleejtimes.com

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