On path to prosperity

Economic activity has stabilised and remains on the path of gradual recovery

In 2018, when the PTI-led government decided to knock on the door of the International Monetary Fund (IMF) for a bailout package to rescue its sinking economy, there was scepticism everywhere. In 2019, Pakistan got a three-year $6 billion loan to avoid a possible default. Now in 2020, indicators point towards significant progress at almost all fronts.

Unlike the previous governments, the economic team under the captaincy of Prime Minister Imran Khan took tough decisions to meet the IMF conditions and put the country's economic growth at fast pace.
The reforms, once termed by Khan as "painful", are now being acknowledged as "fruitful."

Pakistan received accolades from the IMF, reduced inflation, secured GSP-Plus extension, decreased current account deficit, increased exports and got reprieve from the FATF.

A recent staff-level agreement between Pakistan and the IMF shows the global financial body's confidence in reforms carried out by the government.

The IMF staff team held productive talks with Pakistani authorities and praised them on the considerable progress made during the last few months in advancing reforms and continuing with sound economic policies. The mission and the authorities made significant progress in discussions on policies and reforms.

"Economic activity has stabilised and remains on the path of gradual recovery. The current account deficit has declined, helped by the real exchange rate that is now broadly in line with fundamentals, while international reserves continue to rebuild at a pace considerably faster than anticipated. Inflation should start to see a declining trend as the pass-through of exchange rate depreciation has been absorbed and supply-side constraints appear to be temporary. Fiscal performance in the first half of the fiscal year remained strong, with the general government registering a primary surplus of 0.7% of GDP on the back of strong domestic tax revenue growth. Development and social spending have been accelerated," IMF said.

Khan also expressed satisfaction over Pakistan reaching a staff-level agreement with the IMF. According to IMF, decisive policy implementation since June has started to reverse Pakistan's large imbalances, preserving financial stability.

The external adjustment is proceeding quickly on the back of an orderly adjustment to a market-determined exchange rate. Fiscal performance was strong in the first quarter of FY 2020 and budgetary allocations to the Benazir Income Support Programme (BISP) have been expanded. Growth has slowed, broadly in line with expectations, and market confidence is gradually returning.  

Iqbal Dawood, President of Pakistan Business Council (PBC) Dubai, echoed IMF's positive outlook for Pakistan. He said that the current government has overcome initial crisis and the economy is growing in almost all spheres such as industrial, tourism, housing and hospitality sectors.

"Exports are growing while imports are slowing down. Foreign investment slows from foreign investors and overseas Pakistanis is flowing at a decent pace. Pakistan has become one of the most lucrative investment destinations worldwide and there were a lot of positive signs from the economy side," Dawood said, adding that the Covid-19 is now the biggest challenge, not just for Islamabad, but for all capitals in the world.

Highlighting business opportunities in Pakistan, the PBC president pointed out that there are plenty of opportunities in hospitality sector in Pakistan's major cities, especially in the northern areas.
"There are a lot of opportunities in housing and construction sectors, and the cost is also among the lowest. Due to housing shortage, demand is very high, therefore, it is a high time to invest in this," he added.

According to IMF, inflation has started to stabilise and the State Bank of Pakistan has paused its interest rate hike cycle. Prime Minister Khan has also hinted that his government is considering to make the first cut in benchmark interest rate to let the economic activities gain pace.

Meanwhile, the Inter¬national Trade (INTA) Committee of EU Parliament extended the Generalised System of Preferences-Plus (GSP-Plus) status for Pakistan, giving an opportunity to the country to enjoy preferential duties on exports for the next two years.

The extension shows Pakistani leadership's robust efforts in implementing the regulations set by the EU authorities.
The extension gives a chance to the business community to capitalise further on this trade enhancement opportunity. When it comes to textile manufacturing industry, it is considered the backbone of Pakistan's economy.

Government officials held numerous sessions with the textile business community and charted out a comprehensive plan to lift up textile exports. The government withdrew duties and taxes on import of raw cotton in January, which resulted in spike to full-capacity production.
 
FATF efforts recognised
Pakistan's untiring efforts to curb terror financing were acknowledged by the Financial Action Task Force (FATF). Pakistan is currently on global watchdog's grey list and has not been put on the blacklist.
Soon after the economy started showing positive signs, utilisation of development budget has reached the six-year high level of 39% in the first eight months of the current fiscal year of 2019-20.
"This is the highest recorded utilisation of development budget for the past six years," said Asad Umar, Federal Minister for Planning, Development and Special Initiatives, in a recent statement.

PM Khan's decision to sell off the non-profit-making entities in the national interest will save a huge chunk of money for the government that can be diverted to the development projects. The government's austerity drive led by Khan himself is laudable. No major corruption scandal has come out till now, and government looks firm on its zero-tolerance policy towards graft at all levels.

While the government has now put the economy on sound track, it needs to focus on the areas, which require urgent reforms. Despite the government's repeated efforts to introduce reforms in tax system, it is still falling short to meet the tax collection target. Overhauling of Federal Board of Revenue (FBR) is inevitable. PM Khan's mass housing project can change the country's economic prospect if implemented in true spirits. The building of around 500,000 housing units will give a boost to the construction industry and create thousands of jobs.

Government must accelerate its measures to complete the housing projects as promised by the prime minister at time of the election.
 
Relief for public from Covid-19
As global oil prices are down due to the novel Covid-19 and geopolitical circumstances, the government must pass on this benefit to the public and reduce prices. The sharp dip in oil prices could help Pakistan save around $4-$5 billion in oil imports.

Ahmed Shaikhani, Vice-President of the Pakistan Business Council Dubai, said that Islamabad has to take a hard decision due to the Covid-19 impact, while businesses have to plan their strategies very carefully for the next few years to better cope with the situation.

"Lower oil prices would benefit Pakistan and other oil-importing countries but external shocks such as decline in production in China and slowdown in overall global economy could shake the South Asian country's economy," Shaikhani said.

He urged the PTI government to give relief to public because 2020-21 may be a challenging year for the economy. "People have to control their spending while businesses have to plan well for the next two years," he added.
 
- waheedabbas@khaleejtimes.com

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