By Asad Cheema
ISLAMABAD: The Pakistan Tehreek-e-Insaaf (PTI) government’s handling of the COVID-19 as well as the economic crises inherited by the previous government has averted a major catastrophe.
Testing the government’s resolve, from the vantage of an impartial observer, the PTI government’s performance, despite numerous criticisms has been on point, where strategies including fiscal stimuli (Economic package, Construction package) as well as social measures (smart lockdown, Ehsaas program) have averted a major catastrophe, according to a research paper published by AKD securities.
The government’s difficult decisions have manifested in a much improved outlook with major sectors already witnessing growth including cements, fertilizers, autos etc. where numbers have consistently picked pace after multi year lows on account of the COVID19 pandemic.
Improved business outlook has also been reflected in the country’s benchmark stock index performance with the KSE-100 rising by 42.6% to reach 38,836 points from 27,229 points on March 25, 2020, making it one of the best performing markets in the world. Economic metrics on face were good during the previous government’s tenure, however, Pakistan was a deficit funded economy with Current Account Deficit at 6.3% (FY18) and Fiscal deficit at 6.6% (FY18).
Growth as such, was unsustainable given the occurrence of debt. Trade deficit in FY18 stood a monumental 9.9% of GDP, showcasing Pakistan’s leverage based consumption growth, resulting in imports exceeding exports by 2.3x. Currency had also artificially been kept stable.
SBP Reserves, which had fallen to $9.76 billion by FY18 end from $18.1billion in FY16, recovered to currently stand at $12.1billion. With the economy slowly but surely on a mend, the COVID 19 pandemic hit, derailing the economic recovery. Despite numerous criticisms from all spheres, the way the government tackled the Corona crises has to be lauded. Pakistan was amongst the first, if not the first, in a number of steps including announcing an economic package worth PkR1.2 trillion in March 2020, being amongst the first to suggest the concept of smart lockdown and being amongst the first countries to lobby for international debt deferment for emerging economies. With a view of combating the financial repercussions, the SBP initiated one of the most aggressive monetary easing cycle in the world, reducing interest rates to 7.0% from a high of 13.25%.
The announcement of the construction sector package has the potential to kick start the economic wheel. The Rs 30billion subsidy and abolishment of 90% taxes within the Naya Pakistan Housing Scheme (NPHS) should already boost the PM’s much touted project and help generate additional demand. Additionally, CPEC projects have gained pace once again with recent signing agreement for two hydropower projects in Kashmir (Kohala and Azad Pattan hydropower Project) having total investment outlay of $3.9bn while work on ML-1 is expected to commence soon which will be the costliest project of CPEC so far, having total investment outlay of $D7.2bn. All these big-ticket infrastructure projects are only going to propel the construction demand, encouraging investment in construction and allied industries, moving forward. Similarly, in Energy sector resolution of circular debt was one of the major steps as two energy sukuks have been issued, clearing a total of Rs 400 bn in a year. The incentives for exporters helped arrest the decline in Textile exports which fell to $1.2billion in May 2020 on account of COVID19 with a subsequent rebound to $1.58billion in Jun’20.
Already, textile exporters in Pakistan have multiple big ticket orders in place ranging from apparel to face masks. In terms of other sectors, to ensure support to the Agriculture sector, the government announced a Rs50 billion Agri package while GIDC was also removed in January 2020, resulting in fertilizer prices falling by Rs400 per bag. In conclusion, if decided on merit, PTI government’s performance while not perfect has fared particularly well and the criticism on performance appears unjustified. The economic structural issues particularly dollarization of the economy had already caused considerable loss before the incumbent government came into power.
Over the longer term, the government needs to take a leaf out of old friend Saudi Arabia’s book where Crown Prince Salman’s Vision 2030 entails a complete revamp of the Saudi economy. In this regard, the recently signed FTA II with China is a feather in the government’s cap while an FTA with Turkey is also in the pipeline.
From a sustainable growth point of view, however, planning for the longer term is the need of the hour where Pakistan should capitalize on trade disruptions between China and the US by setting up manufacturing facilities in the country, as is already being done by India and Vietnam.
At the same time, the IT industry still remains in infancy in Pakistan, where setting shops may bode well for future service based exports. Pakistan still has long way to go in this regard where compared to India for example, Pakistan’s IT exports remain negligible with India’s IT industry export standing at $99billion in 2018 compared to Pakistan’s $1.3billion in 11 months of FY20.
