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EDITORIAL: The Finance Division uploaded Monthly Economic Update and Outlook September 2021 on Thursday last though the update is limited to July-August excepting the following statistics dated 21 September 2021: Pakistan Stock Exchange Index declined by 3.75 percent, and market capitalization declined by 4.53 percent in rupees and 10.84 percent in dollars. This belies the government claims that the market is responding well to easing monetary and fiscal policies and at the same time highlights the impact of the eroding rupee value on market capitalization. However, incorporation of companies rose by 5.3 percent though the period under consideration has not been itemized.

Data for foreign exchange reserves is also more updated - 12.7 billion dollars in July-August 2020-21 to 19.4 billion dollars on 21 September 2021 which as per the State Bank of Pakistan website came down to 17.49 billion dollars on 15 October 2021. The World Bank report, released on the same day though with the period of review is July-June 2020-21 titled "reviving exports" cites the foreign exchange reserves at 20.6 billion dollars on 1 October 2021 which it maintains is equivalent to only 3.7 months of imports. Public Sector Development Programme authorisation (as opposed to disbursement) was 112 billion rupees (1 July to 4 September 2020-21) and 392.7 billion rupees in the comparable period this year.

What should be a source of serious concern is that large-scale manufacturing (LSM) was shown to rise by a whopping 8.2 percent in July 2020-21 (reflecting the easing of the discount rate to 7 percent in June 2020 - a gradual cut from 13.25 percent in March 2020 that took the Monetary Policy Committee, MPC, five meetings) was only 2.3 percent in July 2021. This belies claims of the government that LSM is picking up at present - a rate that would strengthen the government's objective for a 5 percent growth rate this year. The MPC raised the key discount rate to 7.25 basis points last month and it remains to be seen whether this would have any further impact on productivity - a rate that is concerning because credit to private sector was negative 161.8 (1 July 2020 to 11 September 2021) and negative 74.3 in the comparable period of 2022.

Exports rose by a whopping 35.4 percent, however, in actual terms the rise was from 3.4 billion dollars to 4.6 billion dollars which pales into comparison with a 67.8 percent import rise in July-August 2022 from the comparable period of the year before while in actual terms imports rose from 6.8 billion dollars to 11.4 billion dollars, resulting in a widening trade deficit. The World Bank report argues that the rising trade deficit has increased demand for the dollar contributing to the rupee depreciation, and a 40 percent decline in shipments to Afghanistan subsequent to the Taliban takeover have reduced dollar earnings and led to an increase in outflow of dollars contributing to the dollars scarcity relative to the Pakistani rupee. The World Bank also notes that the reason for falling exports are: (i) high effective import tariff rates; including customs duty, additional customs duty and regulatory duty; (ii) supporting services are inadequate especially long-term financing of capacity expansions and market intelligence to secure new export contracts; and (iii) low productivity of Pakistani firms hinders them from competing globally. And pledges to formulate a strategy for export promotion - a task that one would have hoped the Commerce Ministry would have undertaken by now.

Remittances however continued to strengthen - from 4.9 billion dollars July-August 2020 to 5.4 billion dollars in the comparable period this year. The reasons cited by the World Bank range from travel restrictions including religious travel, policy decisions in the host destinations in the aftermath of Covid-19 which enabled overseas Pakistanis to remit more money, favourable cross currency movements against the US dollar and last, though emphasized the most by the present government, its own policy measures to incentivize flow of remittances through the legal banking channels.

Fiscal deficit was 211.6 billion rupees in July 2020-21 and 237.8 billion rupees in July this year though as a percentage of GDP would be provisional at best and actual data become available as and when the rather optimistic 5 percent growth rate is achieved. The World Bank report claims that fiscal deficit (excluding grants) narrowed to 7.3 percent (the government claim for last year in the budget is 7.1 percent) compared to 8.1 percent in 2019-20 (almost 1 percent lower than anticipated).

July-June 2020-21 FBR revenue collection increase in comparison to July-June 2019-20 is cited at 42.5 percent while a rise of 42.3 percent is cited for July 2021 data compared to July 2022; however, of concern is the fact that non-tax revenue declined by 12.3 percent in fiscal year 2020-21 compared to the year before but the decline is much more steep at 39.6 percent in July 2021 compared to July 2020.

Inflation was 8.7 percent in July-August 2020-21 declining to 8.4 percent in the comparable period of this year though the budget documents indicate that inflation (revised) 2020-21 was 9 percent, for the current year the projection is 8.2 percent, however, the World Bank report argues that inflation will be higher this year. And finally, the GDP growth of 3.9 percent last fiscal year, against the projection of around 2 percent, is attributed to low base effects and recovering domestic demand as per the World Bank report.

Copyright Business Recorder, 2021

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