The finance division’s ‘monthly economic outlook report’ for the month of November reveals that Pakistan’s economy is on a gradual but promising path of recovery. The country has witnessed a remarkable improvement in its fiscal, monetary, external, and industrial sectors, despite the challenges posed by the COVID-19 pandemic and the global economic recession.
Pakistan has successfully reduced its fiscal deficit, increased its foreign exchange reserves, stabilized its currency, and boosted its exports and remittances. Moreover, Pakistan has implemented several structural reforms and policy measures to enhance its economic competitiveness, governance, and social welfare.
A major factor behind this economic resurgence is the establishment of the Special Investment Facilitation Council (SIFC), a hybrid civil-military forum that aims to attract foreign investment and boost economic growth.
The SIFC has in principle approved 28 projects worth billions of dollars that would be offered to Gulf countries for investment, including the construction of Diamer-Bhasha dam and mining operations at Reko Diq.
The involvement of the military in the SIFC reflects a commitment to ensuring policy continuity and stability as well as enhancing the confidence and trust of potential investors. The SIFC also provides a platform to streamline cooperation with other countries and regions such as China, the European Union, and the United States. These achievements have earned Pakistan the praise and support of international financial institutions such as the IMF, World Bank, and Asian Development Bank.
One of the major developments that have contributed to Pakistan’s economic recovery under the initiatives of SIFC in FY-2024 is a bullish stock market, reflecting the confidence of investors and businesses in the economic outlook.
In November 2023, the KSE-100 index of the Pakistan Stock Exchange (PSX) experienced a remarkable surge, soaring by 33% and surpassing the historical milestone of 58,199 points for the first time ever.
Building on this success, the index continued its upward trajectory in December, crossing the highest point mark of 66,000, marking yet another significant achievement.
Similarly, the large-scale manufacturing (LSM) sector, which accounts for about 80%of the industrial output, demonstrated a positive trend for the second consecutive month, posting a growth of 1.0 percent in September 2023.
Besides, the farm tractor production and sales witnessed a remarkable growth of 55.1 percent (17,098) and 86.8 percent (17,296), respectively, during Jul-Oct FY2024 over the corresponding period of last year. This indicates a strong recovery in the agricultural sector, which contributes about 20% to the GDP.
On the fiscal front, the government has managed to contain the fiscal deficit and achieve a primary surplus owing to the healthy growth in revenues and prudent expenditure management. The fiscal deficit reduced to 0.9 percent of GDP in Jul-Sep FY2024 from 1.0 percent of GDP last year.
The primary balance, which excludes interest payments, continued to be in surplus and improved to Rs 416.8 billion (0.4 percent of GDP) in Q1 FY-2024 from Rs 134.7 billion (0.2 percent of GDP) last year. The improvement in the fiscal position has helped reduce the public debt burden and create fiscal space for development spending.
Moreover, the headline inflation, sustained at 26.9 percent on a year-on-year basis in October 2023, as compared to 26.6 percent in October 2022. The inflation rate has been relatively stable despite the upward pressure from the rising global commodity prices and the depreciation of the rupee.
The State Bank of Pakistan (SBP) has maintained the monetary policy rate at 22 percent owing to the significant performance of high-frequency indicators and improved inflation outlook. The SBP has also provided various relief measures and incentives to support the economic activity and mitigate the impact of the pandemic.
On the external front, the current account, which measures the difference between the inflow and outflow of foreign exchange, marked a deficit of 1.05 billion in Jul-Oct FY-2024, as again at a deficit of 3.1 billion last year. The improvement in the current account was largely due to the increase in exports and remittances, which offset the rise in imports.
Furthermore, the exports increased by 21.1 percent to 2.8 billion in October 2023, as compared to 2.3 billion in September 2023, owing to the ease in import restrictions that resulted in a smooth supply of raw material for export-oriented industries.
On the top of that, the remittances increased by 11.5 percent in October 2023 (2.5 billion) as compared to September 2023 (2.2 billion); and on year-on-year basis remittances grew by 9.1 percent. The remittances have been a major source of foreign exchange and a lifeline for the economy.
The foreign direct investment (FDI) reached $524.7 million during Jul?Oct FY-2024 ($489.9 million last year), increasing by 7.1 percent, mainly on account of Chinese investment. The FDI reflects the confidence of foreign investors in the potential and prospects of the economy.
Overall, the positive economic signals and recovery indicators are steering the improvement in the GDP outlook for the fiscal year. In the latest World Economic
Outlook (WEO) report, the IMF forecast that the country’s GDP growth rate would be 3.5% in fiscal year 2024. The economic recovery is expected to gain further momentum in the coming months.
The government, military leadership and the SBP have expressed their commitment to continue the structural reforms and the stabilization policies to ensure sustainable and inclusive growth in the long run.
Copyright Business Recorder, 2023