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Packed potential for Pak economy

Waheed Abbas/Dubai
Filed on September 14, 2020
Pakistan's economy could grow by 1.8% in the ongoing fiscal year, fuelled by some recovery in private consumption.


High remittances, surge in construction, manufacturing and automobile sectors to aid recovery

Pakistan's economy is showing signs of a strong pickup in activity as new coronavirus cases have surprisingly dropped substantially while some key sectors, such as foreign remittances, automobile, construction and manufacturing, are also witnessing good recovery.

The State Bank of Pakistan (SBP) on Monday said remittances from non-resident Pakistanis reached $2.1 billion (Dh7.7 billion) in August, an increase of 24.4 per cent year-on-year. It was the fourth consecutive month of remittances staying above the $2 billion mark. In July, the South Asian country received a record $2.768 billion, an increase of 36.5 per cent or $740 million over the same month last year.

For the first two months of fiscal year 2020-21, remittances are up by 31 per cent.

The top three originating countries for remittances in August were Saudi Arabia, accounting for 28 per cent or $593 million of the total, followed by the UAE (20 per cent, $410 million), the UK (14 per cent, $302 million) and the US (10 per cent, $201.64 million). The rest of the GCC contributed 11 per cent or $226.1 million, while the remaining 17 per cent flowed from other countries.

"Efforts under the Pakistan Remittances Initiative [PRI] and the gradual re-opening of businesses in major host countries such as Middle East, Europe and United States contributed to this increase in remittances," the SBP said.

Pakistan had recorded 302,020 Covid cases, with 96 per cent of them already recovered. It added around 2,900 cases last week compared nearly 35,000 a week in the month of June.

"It has surprised everybody," Muzzammil Aslam, chief executive officer at Tangent Capital Advisors, told Bloomberg about the pandemic in the country.

Aslam projects Pakistan's economy to grow four to five per cent in fiscal year 2020-21 that started in July, higher than the government's 2.1 per cent target. "The growth is led by an aggregate demand push."

The International Institute of Finance (IIF) last month said Pakistan's economy could grow by 1.8 per cent in the ongoing fiscal year, fuelled by some recovery in private consumption. Among key sectors, cement sales surged 38 per cent to 4.8 million in July as construction activity picked up after Islamabad provided incentives for housing projects.

"We expect dispatches to continue their rising run moving forward because of tax measures," Saad Khan, research head at IGI Securities, told Bloomberg.

"A substantial decline in interest rates and mandatory targets given for banks to increase housing and construction financing to at least five per cent of private sector credit will also help," he added.

Iqbal Dawood, president of the Pakistan Business Council in Dubai, attributed the increased inflow of remittances to a large number of people going back due to job losses in the Gulf region and taking their savings with them in invest to their home country.

"A large number of people are moving back due to the economic situation and they are relocating their funds. If there is a political stability in the country and government provides better infrastructure, FDI and remittances inflow will grow substantially," said Dawood.

Replying to a query about economic recovery, he said the new construction package and incentives offered by the government are the main driving force behind the growth. He also praised the Roshan Digital Account, which was launched last week, as a game-changer to attract more remittances and FDI.

Official data showed that petrol sales in June rose to a record high as people return to work after lockdown measures eased in May. Similarly, car sales rose to 10,000 units as the lockdown came to an end. Manufacturing output grew for a second consecutive month in June and is likely to pick up further in months ahead as global economies also grow.

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