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Real GDP growth for the current fiscal year is projected at 3.7 percent, budget deficit at 5.6 percent and adjustment of exchange rate at Rs 145 in the current fiscal year with a further projected depreciation to Rs 170 against the dollar by fiscal year 2022. These ambitious targets set by the Asad Umer led Finance Ministry have been shared with the International Monetary Fund (IMF), well informed sources informed this correspondent but hastened to add that further adjustments may be made during the ongoing negotiations with the Fund before final agreement is reached.
The medium term projected GDP growth rate is 3.8 percent for 2020, 4.3 percent for 2021 and 4.8 percent for 2022. Real GDP growth in medium-term will pick up momentum by fiscal year 2023 to around 5.5 percent after remaining subdued in fiscal year 2019, 2020 due to the effect of stabilization policy.
The growth momentum will be supported by shifting focus to small and medium enterprises and the increase in private sector investment.
Inflation is projected at 8 percent for the current fiscal year, reflecting pass-through of recent exchange rate depreciation, while lagged effect of accommodative monetary policy will get anchored as the effect of tightening of the monetary policy is fully realised.
Inflation is projected to ease to 5.96 percent by 2022. The exchange rate against dollar will be adjusted to Rs 155 in 2020, Rs 165 in 2021 and Rs 170 in fiscal year 2022.
The country''s foreign exchange reserves are projected at $ 11.629 to $ 13.00 billion; with exports at $27.296 billion and imports $54.602 billion for the fiscal year 2019.
The adjustment of rupee, effect of regulatory duties, containment of aggregate demand and fiscal consolidation are all likely to contain imports. The medium-term policies are expected to fuel exports to double digits in the coming five years. Overall, the current account is projected to decrease from a high of 6.1 percent in fiscal year 2018 to around 1.5% of GDP in fiscal year 2023. Under the IMF programme, the current account deficit is projected at 4.6 percent of GDP or $12.902 billion in fiscal year 2019, followed by 2.6 percent of GDP or $7.443 billion in fiscal year 2020, 2.3 percent or $6.998 billion in fiscal year 2021 and 2.7 percent or $8.478 billion in fiscal year 2022.
The State Bank of Pakistan (SBP) policy rate is projected at 10.5 percent in fiscal year 2019, followed by 12 percent in fiscal year 2020 and 2021 and 11 percent in fiscal year 2022.
The government claims it has put in place the necessary stabilization plan and outlined measures to address vulnerabilities and macroeconomic imbalances, required to put the economy on a sustainable growth path. In addition details of structural reforms and a comprehensive social sector strategy have been delineated. It is being ensured that exchange rate policy, monetary policy and fiscal policy move in tandem towards the intended direction to achieve greater macroeconomic stability in the short run and sustained growth in the medium-term.
The recently promulgated remedial measures including cumulative exchange rate adjustment of 31%, policy rate increase of 425 bps, fiscal tightening of around 1.5% of GDP through revised budget, rationalization of gas and electricity tariffs including incentives for export sector have started showing the intended results. With these policy adjustments the government projects in FY 2019: (i) a fiscal deficit of 5.6% of GDP; (ii) Curtailment of quasi-fiscal losses of 1% of GDP; and (iii) Growth in exports and remittances together with curtailment of imports likely to reduce current account deficit to around 4% of GDP. With these stabilization measures, the real GDP growth is expected to moderate to around 4%.
The strong policy actions, anchored in a decisive strategy have substantially closed the foreign financing gap for fiscal year 2019. Bilateral inflows and oil supplies on deferred payments have further helped bridge the foreign financing gap for fiscal year 2019 and will support a build-up of foreign exchange reserves to around 2.5 months of import by end fiscal year 2019. The authorities stand ready to take further stabilization measures including fiscal adjustments, import rationalization and monetary tightening to contain inflation that will be required to put the economy on a further sustainable growth path. In the medium-term the growth outlook is expected to improve to over 5% by fiscal year 2023.
As stabilization takes hold the medium term reform framework includes: (i) Structural measures to eliminate circular debt and inefficiencies in energy sector; (ii) Change the industrial mix to support small and medium enterprises sector; (iii) Increase financial inclusion, (iv) Moving from an import-led economy to a diversified export-led one, and (v) Ensuring productivity enhancement.
Prioritising reforms in tax system and public financial management, creation of holding company "Sarmaye-e-Pakistan" for rehabilitation of SOEs along with privatization is being put in place. Housing finance to provide shelter, uplift of agriculture to provide food security along with job creation remains the government''s priority. Overall the growth strategy will be anchored by an increase in productivity and support for doubling of exports by fiscal year 2023.

Copyright Business Recorder, 2019

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