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Keeping in view the export orders in hand, Abdul Razzak Dawood, Advisor to the PM on Commerce and Industries, has claimed in a recent newspaper interview that Pakistan's exports will increase to $28 billion by end of the current financial year. Indeed, exports from the country during July- Aug (2020-2021) seem to be picking up as they recorded at Rs. 599,260 million as against Rs. 593,306 million during the corresponding period of last year, showing an increase of 1 percent, according to provisional data released by Pakistan Bureau of Statistics (PBS).

Meanwhile, workers' remittances remained above $2 billion for the fourth consecutive month in September. They increased to $2.3 billion, 31.2 percent higher than the same month last year and 9 percent higher than in August. On a cumulative basis, remittances rose to a record $ 7.1 billion in Q1-FY21, 31.1 higher than the same period of last year. The measures taken by the State Bank of Pakistan (SBP) to encourage overseas Pakistanis to send money home through legal channels seem to have started to show results.

At the same time, the demand for foreign currencies has fallen after the G20 deferred Pakistan's debt payments. Moreover, G20 creditor countries further extended the debt suspension initiative for another six months.

Meanwhile, the demand for the dollar remained lower due to fewer import payments as the supply of the greenback is exceeding the demand.

As a result, the Pakistani Rupee has embraced a sudden wave of strength against the greenback since the 1st of October. The interbank market saw the rupee climb to 162.49 versus the greenback late last week. It gained 36 paisas during the session, whereas it had closed at 162.86 on Thursday last. Dealers are expecting that rupee will appreciate to 160/USD by month-end.

Another positive development on the economic front is the visible suggestion of economic recovery being driven mainly by the manufacturing sector and the construction industry, both having been provided liberal fiscal and monetary stimulus.

That the large-scale manufacturing sector recorded a five per cent growth in July was a positive development. The growth was however concentrated in a few industries like cigarette, wheat and grain milling, cement and medicines. Though, lately, car sales have also picked up.

In September, cement sales peaked at the highest monthly figure at 5.21 million tons, up from 4.27m tons in the same month last year. Local sales jumped by 17.65 percent and exports went up by 41 percent. The demand pulled price hike has pushed the price of 50kg cement bag by an additional Rs30 which will have an adverse impact on low-cost housing.

Increase in the demand for cement is also attributed to the fact the public sector in Balochistan and KP have resumed construction of mini dams. In Balochistan alone, as many as 100 mini dams are to be built. The KP government is planning to construct 358 small dams by end fiscal 2023.Construction of small dams is expected to spur farm production primarily in arid zones. The World Bank is likely to extend a loan of $200m for building small dams in Sindh.

Meanwhile, the progress so far achieved in moving on the CPEC-related Special Economic Zones project also gives rise to hopes of another flip to the overall economy and especially the cement industry. All the existing plots of the Jalozai SEZ were sold out within a month; Nowshera SEZ extension was ready for commercial launch; Rashakai SEZ development agreement has been signed.

The fiscal and monetary stimulus, while significant enough to revive one or two sectors, may produce only sporadic growth that will not be sustainable. There is a need to synchronize and harmonize growth in all sectors of the economy. In the case of manufacturing, the growth has to be synchronized with an increase in agricultural output. Indeed, with agriculture underperforming, the growth in manufacturing will be severally handicapped. According to the US Department of Agriculture, the 2020-21 Pakistan's cotton crop is forecast at 6.3m bales against previous year's 8m bales. This is a steep fall from the peak output of close to 15m bales only a few years ago. The textile industry's consumption is predicted at 11m bales this year. The actual shortage has to be met by imports.

However, the World Bank has projected Pakistan's growth rate to dip to minus 15 per cent this fiscal year from 1.9 per cent in fiscal year 2019; and despite a fall in private consumption, inflation is riding at 10.7 per cent in 2020 against around 6 per cent in 2019, due to high food prices, a revision in power tariffs, and a depreciation of the rupee against the US dollar.

What, however, seems to be continuing to hold Pakistan's economy back is its inability to expand its tax base. According to Moody's Pakistan (B3 stable) is likely to face additional hurdles due to Covid-19. Any further delay in the implementation of the relevant tax reforms would not go well with the IMF and may cause the Fund to drag its feet in reviving its three-year, $6 billion program.

Another aspect of the economy that is also expected to cause the IMF to drag its feet is the continued failure of the government to eliminate or at least reduce the circular debt. Circular debt's resolution through substantial tariff increases and governance improvement has become the biggest challenge to the revival of the $6 billion IMF programme stalled since February.

On Sept 29, the latest data put the power sector payables at Rs2.24 trillion at the end of August, up from Rs1.16 trillion in June 2019 and Rs1.18 trillion in June 2018. The payables of Rs2.24 trillion included a little over Rs1 trillion parked in Power Holding Company and about Rs1.23 trillion liabilities against power companies. Of this, the biggest chunk of Rs830 billion is payable to Independent Power Producers (IPPs) followed by Rs220 billion to Wapda, Rs163 billion to oil and gas companies and about Rs20 billion to National Transmission and Despatch Company (NTDC). In 2019-20, total payables or the circular debt increased by Rs538 billion.

On the other hand, the power sector's receivables also reached about Rs1.44 trillion by the end of August. Ironically, the biggest portion of about Rs690 billion is recoverable from private consumers. As much as Rs180 billion is outstanding against K-Electric while the remaining Rs567 billion is payable by the public sector. In 2019-20, these receivables increased by Rs480 billion.

The loan programme of the International Monetary Fund (IMF) suspended in January remains in limbo as Pakistan's public debt went past 87 per cent of GDP at the end of 2019-20, up from about 72 percent of GDP at the end of 2017-18.

Pakistan direly needs the IMF support to maintain healthy foreign inflows from bilateral and multilateral lenders to keep servicing over $78 billion foreign public debt.

But last week, the IMF's latest Monitor suggested its support for developing countries would direly fall short as opposed to the generous help it is extending to the rich countries. At the onset of the Covid-19 crisis, United Nations Conference on Trade and Development (UNCTAD) and the IMF each estimated that emerging market and developing countries would need at least USD 2.5 trillion in 2020 and more in 2021 to avoid economic collapse. In April, IMF Managing Director Kristalina Georgieva even appealed to the Fund board to boost global liquidity through a sizeable SDR (Special Drawing Right) allocation but the US refused to oblige. Therefore, IMF emergency programmes for developing countries are doing little to encourage a green recovery as overwhelming majority of IMF programmes lack a green recovery component.

And things may be about to get worse. At a recent event, IMF First Managing Director and former Trump Administration official Geoffrey Okamoto said developing nations should 'keep those receipts,' hinting that a return to austerity is coming. Indeed, in a new report, it was found that the IMF has encouraged 72 countries to begin a process of fiscal consolidation as early as 2021. These sentiments are echoed in the IMF's newest Fiscal Monitor released this week, encouraging advanced economies to increase spending and debt to mount a green recovery, but cautioning emerging market and developing countries to get frugal.

According to Kevin P. Gallagher (The IMF's return to austerity published in International Politics and Society newsletter on Oct. 13, 2020) US intransigence at the IMF may leave middle and low-income countries unable to recover for years to come.

He suggests that as the US retreats from multilateralism and the IMF is on the verge of backtracking, it is time for the rest of the world to lead.

"If the Covid-19 crisis has proved anything, it is that no country can isolate itself from others. Until there is a universal vaccine, if the virus isn't tackled everywhere it can show up anywhere. Similarly, debt crises and big downturns anywhere effect supply chains and livelihoods everywhere."

Copyright Business Recorder, 2020

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