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ISLAMABAD: Although macroeconomic indicators of six months indicate that average economic growth for this period of ongoing fiscal year may be around five percent, the situation is not risk-free as increase in global commodity prices may dampen the economic activity in Pakistan.

This was highlighted by the Institute of Policy Reforms factsheet of February 2022 titled encouraging signs in economy; review of economic performance in fiscal year 2021, and first half of fiscal year 2022.

The report noted that after a period of adjustment and damage control that inevitably slowed down the economy, some bold initiatives taken by the government have created healthy dynamism and economic growth since fiscal year 2021. The GDP growth has been revised to 5.37 percent. This is an improvement of 1.43 percentage points over the earlier estimate of 3.94 percent based on nine-month data.

This reviews recent economic developments and trends, including government and the SBP decisions that lie behind the present healthy economic indicators.

These decisions caused aggregate demand for consumption and investment to grow rapidly in fiscal year 2021 over fiscal year 2020.

An especially promising sign is brisk growth in Pakistan’s exports that rose 18 percent year-on-year in fiscal year 2021 and by a hefty 28 percent in July-December fiscal year 2022.

The report also pointed out that the SBP has increased the policy rate at 9.75 percent from 7.25 percent in September 2021 but private borrowings have continued and in fiscal year 2022, during July-December, private credit grew by Rs 1,013.9 billion against Rs 344.2 billion for the same period last year. Of the total loans to businesses, fixed investment loans amounted to Rs 200 billion. Borrowing for fixed investment was Rs 115.7 billion during the same period last year. Loans for working capital amounted to Rs 607 billion. The rest was trade finance. In fiscal year 2022, July-December, year-on-year remittances have grown by a further 11 percent. In fiscal year 2021, merchandise exports grew by over 18 percent, and by 28 percent in fiscal year 2022, July-December as global economy recovered after the pandemic-induced slowdown.

Overall, in the last two decades, the country has seen few periods of such buoyancy and economic dynamism as in fiscal year 2021 and fiscal year 2022.

This sanguine picture is not without challenges brought by natural causes as well as from enduring macro-economic issues that successive governments have been unable to address, and which include low rates of savings and investment, inadequate production capacity and minimal productivity gains.

Resultantly, economic growth soon leads to a vulnerable external sector.

New variants of the Covid-19 have brought frequent breaks in global and domestic recovery. With high correlation between LSM growth and imports, pressure on the current account has begun to re-emerge.

Inflation too continues to be a challenge.

Yet, economic activity has been buoyant across all sectors as in fiscal year 2021, agriculture grew by 3.29 percent, industry by 8.94 percent and services by 4.92 percent. Overall, real GDP grew by 5.37percent in fiscal year 2021 and by 5.57 percent when the effect of rebasing of data from the year 2016 is included.

Thus, total size of GDP in was Rs55, 488 billion.

Despite emerging imbalances, all indications are that economic growth is still buoyant. The Finance Ministry data shows that for Rabi 2021-22, (harvesting April-May 2022), wheat has been sown on 22.8 million acres.

Government expects wheat production to meet its target of 28.9 million tons.

Input supply has been good. Agriculture credit has grown, tractor sales are up 21 percent, and fertiliser off take has grown in double digits.

After the challenges of 2018 made further complex by the pandemic, the economy has recovered well since fiscal year 2021. Key to this recovery were government’s fiscal stimulus and addition of liquidity to the economy. Additionally, especial incentives and facilitation for industry and agriculture have helped economic revival. These policies are expected to continue. Coupled with plans for strategic growth in public investment in key productivity boosting sectors, we hope to see continuous economic progress.

The effect of additional indirect taxes in January may dampen demand in the short-term, but will help place the economy on more sustainable footing, ended the report.

Copyright Business Recorder, 2022

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