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EDITORIAL: Monthly Economic Bulletin and Outlook March 2021 released by the Finance Division, Economic Adviser’s Wing, maintains that “prospects of economic growth are showing visible signs of improvement however the third wave of the pandemic is posing some downward risks.” The signs of improvement noted are seven.

First, the projection of wheat crop is better compared to last year’s crop, however last year wheat output was 25.25 million tons (against the target of 27.03 million tons) while this year’s target is 26.78 million tons expected to be surpassed to reach a historical high of over 28 million tons. Ibrahim Mughal, the chairman of Agri-forum Pakistan, has publicly acknowledged that the official projections are based on a little over 33 maunds per acre with farmers maintain their yield is up to 40 to 45 maunds per acre. Irrespective of this improvement, the Economic Coordination Committee (ECC) of cabinet approved 3 million tons of wheat imports this week to meet projected domestic demand. However, not noted in the report rice and corn are expected to witness an increase in output this year with surplus rice projected to be exported. However, cotton output, a major input for our value-added exports, is projected to decline by 34 percent due to ballworm and white flying with any shortfall compelling the textile sector to import the commodity.

Second, large-scale manufacturing surpassed pre-Covid-19 levels, the Update notes, however pre-Covid-19, the severe contractionary monetary policies supported by the State Bank of Pakistan (SBP), including a discount rate of 13.25 percent and massive depreciation within a short space of time, were the reason behind the contraction.

Third, consumer price index of a little over 11 percent in 2019-20 (again due to harsh monetary and fiscal policies implemented at the time) came down to 8.7 percent in February 2021 (due to easing of these policies after the pandemic onslaught in March 2020). Fourth, July-February 2021 Federal Board of Revenue (FBR) collections rose by 6 percent with collections under petroleum levy (a tax whose incidence on the poor is a lot higher than the rich but it is not a component of the divisible pool and therefore is retained entirely by the centre) rising from 260 billion rupees last year to 450 billion rupees this year.

Fifth, current expenditures have not been budgeted to be contained as claimed in the Update other than under the head of the debt relief initiative by G20 countries deferring repayments for a year, hence the claim that July-January fiscal balance was negative 1309 billion rupees against negative 1430 billion rupees (with foreign loan repayment last year accounting for 1.245 trillion rupees) does not present an accurate picture and neither does the claim of containment of the fiscal deficit to 1309 billion rupees against 1430 billion rupees last year (July-February).

Sixth, the rise in remittances has been an unmitigated success, though time will tell how much of this rise is due to the confidence of our overseas workers in the Khan administration, or the efforts of the State Bank or to the global pandemic restrictions. July-February 2021 remittances were of 18.7 billion dollars against 15.1 billion dollars the year before – a rise of nearly 24 percent.

Foreign exchange reserves held by the SBP rose marginally to 12.9 billion dollars (against 12.7 billion dollars last year) however while this year remittances’ component is higher, last year portfolio investment due to the inexplicably high discount rate was around 3 billion dollars though that amount has, as warned by independent economists, left the country since. The bulk of the reserves however are debt-swap arrangements as well as debt equity through issuance of sukuk/Eurobonds.

Another area of concern is the performance of the international trade sector – exports in spite of all the monetary and fiscal incentives dating from April 2020 have actually declined from 16.4 billion dollars (July-February 2019-20) to 16.1 billion dollars in the comparable period of this year while imports rose from 29.6 billion dollars last year to 32.1 billion dollars this year. Foreign Direct Investment declined by 29.9 percent in July-February 2020-21 compared to the same period of last year.

And finally, agriculture credit and credit to the private sector rose by 2.9 percent and 49.4 percent, respectively, this year; however, one would have to wait to see whether this rise would translate into a meaningful rise in output.

The newly-appointed finance minister has his extremely challenging work cut out for him but one would hope that he begins by directing the Economic Adviser’s Wing to present a clear and accurate picture that would strengthen his hands in convincing his Cabinet colleagues to approve politically difficult decisions.

Copyright Business Recorder, 2021


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