On The Path To Growth

Positive signs indicate that the tough time is about to be over as the country resumes its journey on the road to progress and prosperity

Pakistan’s economy is passing through a challenging phase since the new government assumed charge in April this year. But now positive signs indicate that the tough time is about to be over and the country will resume its journey on the road to progress and prosperity.

The country, which is celebrating its 76th Independence Day on August 14, will remain on a sustainable growth path, in line with the reforms agenda set by the International Monetary Fund (IMF) in its $6 billion extended fund facility in 2019. The government has taken many difficult measures in the past four months to meet the fund’s tough conditions to revive its programme.

Analysts, economists, political leaders and experts strongly dispelled the general impression that the country will default on its external liabilities and said uncertainty on the economic front will be over with the resumption of the IMF programme. They said the $1.2 billion IMF tranche will unlock the foreign inflows, worth billions of dollars from other multinational lenders, friendly nations and other international groups. It will ease pressure on the shrinking rupee and foreign exchange reserves of the country.

In July, the IMF reached a staff-level agreement with Pakistan to pave the way for the disbursement of $1.2 billion loan tranche. If this is approved by the executive board of the IMF, the scope of the original $6 billion bailout package agreed in 2019 will rise to $7 billion and extend the duration of the programme to June 2023.

$32 BILLION FINANCING NEEDS

In a comprehensive report on Pakistan’s economic outlook, the Karachi-based brokerage house Topline Securities said Pakistan’s economy has hit the bottom hard and is set to rebound with a requirement for foreign financing estimated at a much lower level at $32 billion than previously projected for the current financial year 2022-23. The report said the country’s current account deficit is expected to reduce sharply to $8.7 billion against the $10-$15 billion in the ongoing fiscal year, while the central bank’s key policy rate has already peaked at the current level of 15 per cent.

“These developments are showing signs of economic stability,” Topline Securities said.

Pakistan’s total financing needs are estimated at $32.2 billion in 2022-23. It includes $23.5 billion in debt repayment and $8.7 billion in current account deficit.

“We believe that Pakistan will be able to meet the financing needs in 2022-23 as we project available financing of $33.8 billion,” according to Topline Securities.

State Bank of Pakistan acting Governor, Dr. Murtaza Syed echoed similar views and said Pakistan had already arranged external financing of $34 to $35 billion to cater to its financial liabilities during the financial year 2022-23.

“The economy is not close to recession mode,” Syed said.

Former Finance Minister and senior Pakistan Muslim League (N) leader Ishaq Dar said the country will not default on its liabilities.

“Pakistan can and will manage its commitments and there won’t be any risk of default (Insha Allah),” Dar told Khaleej Times recently.

GDP GROWTH OUTLOOK

The State Bank of Pakistan, the central bank, projected that the country’s gross domestic product (GDP) will ease to three to four per cent during the financial year 2022-23. The government, which set five per cent GDP growth in the budgetary documents, is confident of achieving a sustainable growth target and putting the economy back on track.

International financial institutions, such as the World Bank, expect that Pakistan economy will grow at four per cent in the financial year 2022-23.

In its latest Asian Development Outlook report, the Manila-based Asian Development Bank (ADB) has projected that Pakistan’s GDP in 2022 will be moderate on fiscal tightening measures to manage growing demand pressures and contain external and fiscal imbalances. The bank said growth in fiscal year 2022-23 is projected to recover slightly, supported by structural reforms.

Former Finance Minister Shaukat Tarin said Pakistan economy stands firm on solid ground despite some challenges.

“We have laid a solid foundation for Pakistan’s economy by expanding the tax base and generating the highest ever revenues in the country’s history. We will not default as exports and remittances are also touching record levels,” Tarin recently added to Khaleej Times recently.

INFLATION, RUPEE

The volatile rupee and rising inflation are two major concerns for businesses and the common man as they are unable to cope with the situation. However, experts said inflation will continue to rise due to higher commodity rates in international markets.

Topline said inflation will remain close to SBP’s revised estimate of 18 per cent to 20 per cent in 2022-23 due to adjustments in energy tariffs, currency devaluation, and rising food inflation.

“We expect year-on-year consumer price index will hit peak level in August 2022 (this month in the range of 25 - 28 per cent) and start falling from Sep¬tember 2022 and onwards,” according to the Topline report.

It further said falling imports, revival of the IMF loan programme and other inflows will bring stability to the Pakistani rupee.

“We now expect Pak rupee to remain in the range of Rs200-240 in 2022-23. We expect the rupee will settle at around Rs220 in financial year 2022-23 against average US dollar rate of Rs178 in fiscal year 2021-22,” the report said.

Analysts and forex market experts said the currency will bounce back in coming weeks once the inflows start to increase in second half of the month. However, they cautioned that the political instability will continue to weigh on the rupee’s future and may slow the recovery pace in coming days.

Zafar Paracha, General Secretary, Exchange Companies Association of Pakistan, said the rupee should continue its recovery drive against the US dollar and other major currencies as the import bill is on the decline and oil prices are coming down.

“The rupee was artificially forced to shed its value in the interbank and open markets in past few weeks. Its value should not exceed beyond 200 to a dollar and the currency should trade in the range of 190 to 200 while in the longer run it should be stable at 160,” Paracha said.

SOLID POLICY STEPS

Dr. Qais Aslam, Professor of Economics at Lahore-based University of Central Punjab, said the government should evolve a solid policy and implement short-term and long-term measures forthwith to control the economic damage.

“Under short-term solutions, we need to restrict imports of all unnecessary items for six months and allow SMEs to export without export duty extensively and attract foreign remittances more aggres¬sively,” Aslam told Khaleej Times recently.

“Under the long-term policy measures, we need to educate our children in productive, scientific behaviours that induce export-orientated business and produce electricity with indigenous resources. In addition, the government should promote electric buses to reduce dependency on foreign oil,” he added.

— muzaffarrizvi@khaleejtimes.com