ISLAMABAD: The finance ministry says economic performance during the first half of the current fiscal year (2021-22) indicates that the economy is progressively moving on a higher inclusive and sustainable growth path, reports WealthPK.
According to the ministry’s mid-year budget review report for the ongoing financial year (FY22), there are strong expectations about economic growth in FY22.
The trend of core macroeconomic indicators provides an optimistic scenario for growth in FY22 with the expectation that it will remain above the projected growth of 4.8% and maintain its momentum in the medium term.
The government is introducing economic policies that focus on strengthening the economy, based on price stability and sustainability of external and fiscal sectors.
On the revenue side, the FBR tax collection grew by 32.5% during the first half of the FY22 on a year-or-year (YOY) basis. However, collection of non-tax revenue remained 69% of mid-year estimates due to low realization of petroleum development levy (PDL), gas infrastructure development cess (GIDC), dividend from state owned enterprises (SOEs), passport fee, etc.
The current expenditures were controlled through austerity measures and strict financial discipline. However, Covid-related expenditures, including purchase of vaccine, were made to provide relief and mitigate the impact of the pandemic. Nevertheless, the increase in the federal tax revenue and containment of expenditure limited the federal deficit to 2.1% of gross domestic product (GDP).
The federal public sector development program (PSDP) was prepared with the focus on building capacities for sustainable growth, modernization and infrastructure for growth acceleration, mitigating climate change impact, strengthening efficiency of transport and logistics, transforming delivery of social services, deepening people-centric security and expanding outreach of digital media. In order to achieve these objectives, a robust release mechanism of funds has been adopted. The PSDP has been utilized at 52% of authorization.
The ministry highlighted that the increase in the current expenditure is expected due to rising interest payments, Covid-related spending, energy subsidies, social safety net expenditures and running of civil government. Adjustments are, however, required to be made in PSDP allocation due to higher than estimated recurrent expenditure.
Owing to the successful encountering of the pandemic, the economy has consolidated gains achieved from the last fiscal year. The economy grew by 5.57% last financial year compared to 1.0% contraction in financial year 2020. This is the second highest growth achieved in the last 14 years. This high growth has been achieved without the widening of twin deficits.
International financial institutions like the World Bank and International Monetary Fund (IMF) noted surprising improvements in Pakistan’s economic situation supported by enhanced domestic demand, increased inflows and accommodative monetary policy.
The government’s efforts on the economic front have been acknowledged at the international level. The IMF has appreciated that government authorities have taken important measures to strengthen the fiscal policy and to put public finance on a sound footing.
Continuity in fiscal consolidation and better financial management present a promising economic outlook. However, there are certain challenges which may impact the growth prospects. In the medium term, the growth target is set at 5-6% with price stability. Realization of this goal requires economic stability.
The government is highly committed and working diligently to cope with these challenges by introducing a comprehensive set of economic policies in all sectors of economy such as industrial package, incentives for export promotion, promulgating investment promotion strategy and social sector development programs.
In the budget FY22, the government drastically reduced duties and taxes on import of raw materials to bring down the input costs of exportable products.
Liquidity issues were also resolved to a considerable extent by timely release of refunds and payments of cash subsidies. As a result, textile exports rose by 26% during the first half of FY22 and country’s overall exports posted year-on-year growth of 24.91% to reach $15.13 billion from $12.1 I billion in the same period last year. For sustainable and rapid medium-term growth, private sector investment and exports need to revive.
Tax exemption on income from exports of computer software and IT services till June 30, 2025 have also been granted, which will further improve export sector.
Meanwhile, a subsidy of Rs14.88 billion as Industrial Support Package and Rs24.3 billion for zero-rated industry has been given as supplementary grants along with budgeted subsidies of Rs15 billion and Rs26 billion respectively, which will help in expanding the manufacturing base leading to growth sustainability.
In order to meet the demand supply gap and ensure provision of fertilizer for farmers for the Rabi crop, a subsidy of Rs7.5 billion has been provided to the National Food Security & Research.
The government has announced a new Auto Industry Development and Export Policy (AIDEP 2021-26) under which sales tax on local electric vehicles (EVs) has been slashed from 17% to 1%. The Small and medium enterprises (SME) Policy 2021 envisages different aspects of majority sectors and aims at facilitating, encouraging and supporting the entrepreneurs.
These measures will not only help the economy to withstand any external or internal shocks, but also pave way for achieving a higher inclusive and sustainable growth.
INP
