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Coronavirus
LOW Source: covid.gov.pk
Pakistan Deaths
28,269
1724hr
Pakistan Cases
1,264,384
72024hr
1.61% positivity
Sindh
465,486
Punjab
437,793
Balochistan
33,120
Islamabad
106,445
KPK
176,774

ISLAMABAD: Increase in commodity prices worldwide will have inflationary implications for Pakistan, as the country largely depends on imports, says the Ministry of Economic Affairs.

The ministry has prepared the “Global and Regional Economic Overview 2021”, which stated that like many other countries, Pakistan had also faced the negative fallout of the Covid-19 on the economy.

However, Pakistan’s economy performed impressively in comparison to other countries of the region and beaten the economic projections made by various international agencies.

The report noted that the real GDP growth is contracted by -0.4 percent in 2020.

It was forecasted by the International Monetary Fund (IMF) that economic growth will be 1.5 percent in 2021.

However, Pakistan’s economy performed beyond expectations with all major macroeconomic indicators showing positive trend amid the Covid-19 pandemic and the National Accounts Committee, which is the highest decision making body has calculated a robust 3.9 percent economic growth rate in 2021.

The current account deficit has narrowed sharply from 4.9 percent of the GDP in 2019 to 1.1 percent in 2020 mainly, because of the increased workers’ remittances and reduction in the trade deficit.

During 2019, Pakistan received the remittances amounting to $21.7 billion, which has increased to 23.1 billion in 2020.

The State Bank of Pakistan (SBP) has reported an increase of 29 percent in workers’ remittances for FY2021 (July-April) in comparison to the same period for fiscal year 2020.

The current account deficit is projected to be 1.5 percent of the GDP in 2021.

Both exports and imports of goods and services are currently significantly higher than their respective values at the beginning of the current fiscal year.

These trends reflect the foreign and domestic rebounds in economic activities.

It further stated that the current account balance recorded a surplus during the first 10 months of 2020-21.

In the coming months, exports of goods and services are expected to settle above the three billion dollars mark, showing a positive trend.

Depending on the trend in remittances, the current account balance may remain in surplus or approximate balance.

The report stated that inflation increased by 11.1 percent on a year-on-year basis in April 2021 as compared to an increase of 8.5 percent in April 2020.

In recent months, international oil price and food price dynamics have decelerated somewhat and the Pakistani rupee has strengthened against the US dollar.

Assuming the absence of any new supply shocks and continued government monitoring of smooth functioning of markets in essential products, inflation is expected to continue to decelerate in the coming months as well.

The consolidated fiscal operations for the first nine months of the current fiscal year show that efficient expenditure management and an effective resource mobilisation strategy helped in containing the fiscal deficit at 3.5 percent of the GDP, which is lower than the level recorded in the same period last year.

The report noted that rebound in global trade volumes in 2021 and 2022 provides a great opportunity to Pakistan to increase its exports.

The report stated that India’s GDP growth has contracted by 8.0 percent in 2020.

It will rebound sharply to 12.5 percent in 2021, although second wave of the Covid-19 has made these projections somehow shabby.

The investment has reduced to 28.4 percent of the GDP in 2020 from 30.7 percent of GDP in 2019.

However, it is expected that domestic demand will rebound strongly and growth in investment and consumption will return to 2019 levels during 2021.

Inflation is averaged at 6.2 percent in 2020 and forecasted to be 4.9 percent in 2021.

India’s exports had contracted by 8.0 percent in 2020, imports were also contracted by 15.4 percent in 2020 because of falling oil prices and reduced net oil import bill.

Resultantly, current account will turn to a surplus of 1.0 percent of GDP in 2020.

However, as the global economy rebounds in 2021, exports are expected to recover and grow at the same pace as in 2016-18 period and it is expected that exports will grew at 11.0 percent of GDP in 2021.

Imports, supported by rising domestic demand and oil prices, are likely to outgrow exports in 2021.

As the trade deficit widens, the current account deficit is expected to rise to 1.2 percent of GDP in 2021.

In Bangladesh, growth slows downed to 3.8 percent in 2020 from 8.2 percent in 2019. However, economic growth of 5.0 percent has been forecasted for 2021.

Investment as percentage of GDP was 32 percent in 2019.

It declined to 28 percent in 2020 and it is forecasted to increase to 31 percent in 2021.

Bangladesh is vulnerable to supply chain disruptions, both domestic and stemming from imports of intermediate goods.

Both exports and imports contracted in 2020, mostly due to lower demand for garments intermediates and capital imports.

However, exports contracted by 13 percent and imports by three percent.

Resultantly, current account deficit (percent of GDP) has reduced from 1.7 percent in 2019 to 1.5 percent in 2020.

With expected global growth recovery in 2021, exports are expected to grow at 14 percent in 2021.

Inflation in Bangladesh remained 5.5 percent in 2020 because of the higher global and regional food prices.

Inflation is expected to increase further to 5.8 percent in 2021.

The report stated that Sri Lanka’s prospects for economic recovery were very promising at the beginning of 2020.

However, the Covid-19 has faded away these prospects by lowering global growth, disrupting tourism and supply chains. Sri Lanka’s real GDP has contracted by 3.6 percent in 2020.

The GDP growth is expected to recover to 4.0 percent in 2021.

Investment has declined to 26.0 percent of GDP in 2020; however, a recovery is expected in 2021 and investment as percentage of the GDP is forecasted to be 27.3 in 2021.

Sri Lanka’s budget deficit is expected to be 11.9 percent of the GDP in 2020 and 10.5 percent of the GDP in 2021.

Copyright Business Recorder, 2021

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