By Muhammad Luqman
Pakistan’s economy is all set to contract in the outgoing fiscal year 2019-20 with a negative growth rate of 0.38 percent due to twin monster of corona virus and invasion of locust in addition to already weak financial conditions even before the pandemic.
GDP Growth Rate in Pakistan averaged 4.92 percent from 1953 until 2018, reaching an all time high of 10.22 percent in 1954 and a record low of -1.80 percent in 1952.
“The present government inherited the economic crisis of the current account deficit which amounted to $20 billion from the previous government, where Pakistan’s external account was moving towards default, whereas our expenditure was more than our income, ” advisor to Prime Minister on Finance, Dr. Hafeez Shaikh said while unveiling the Economic Survey 2019-20 in the capital, Islamabad on Thursday.
Sheikh said that the government was inducing growth by taking loans from external sources, in such a situation the government decided to mobilize resources by seeking loans from partner countries and the International Monetary Fund (IMF).
He said that the provisional GDP growth rate for fiscal year 2020 is estimated at negative 0.38 percent on the basis of 2.67, -2.64, and -0.59pc growth in agricultural, industrial and services sectors, respectively.
“Although, provisional GDP growth rate for FY2020 is estimated at negative 0.38 percent, however, macroeconomic stabilization measures undertaken by the government over the past year resulted in significant reduction in Saving-Investment Gap which was mainly driven by reduction in trade deficit and increase in workers’ remittances. It is also mentionable that fiscal deficit remained contained in first three quarters of FY2020,” he said.
#COVID19 impacted economy of the entire world, and according to IMF forecast, the world's income is expected to reduce by three to four percent: @a_hafeezshaikh https://t.co/hRaGyVfzfT pic.twitter.com/HtkJVjRyLS
— Radio Pakistan (@RadioPakistan) June 11, 2020
Sheikh said that the government also decided to improve the country’s tax regime and improve the country’s exports by providing incentives to the businesses. “The current account deficit amounting to $20bn was brought down to $3bn, this is a big achievement of the government,” he said.
However, according to the survey, total public debt was recorded at Rs 35,207 billion at end March 2020 compared with Rs 32,708 billion at end June 2019, registering an increase of Rs 2,499 billion during first nine month of current fiscal year while Federal Government borrowing for financing of its deficit was Rs 2,080 billion.
During July-March FY2020, current account deficit (CAD) reduced by 73.1 percent to US$ 2.8 billion (1.1 percent of GDP) against US$ 10.3 billion last year (3.7 percent of GDP), read the survey.
Sheikh said that the government aimed to provide further relief to the masses by not imposing new taxes. “Despite a small budget, we doubled the budget for the Ehsaas Programme so that the money could reach the people,” he said.
Talking about the ongoing coronavirus pandemic, Sheikh said that the government policy has been to maintain a balance between saving people’s lives and protecting the economy as well.
The advisor said that the country’s economy suffered losses worth Rs3000bn. In order to mitigate the impact, the government announced an Rs1240bn package, he said.
The IMF has forecasted the global economy would decline by 3-4pc, and the loss in global demand also affected our exports. “It is difficult to ascertain anything related to coronavirus,” he said.
“The outbreak of Coronavirus (COVID-19) has negatively affected the near-term outlook. It has brought significant challenges for the economy by squeezing the economic gains achieved during the ongoing fiscal year. In particular, fiscal accounts are expected to come under tremendous pressure,” read the survey.
The Federal Board of Revenue (FBR) tax collection target was expected to reach Rs4.8 trillion, but has now been reduced to Rs3.9 trillion, meaning FBR sustained losses of up to Rs700-800 billion in its tax collection, informed Sheikh.
“We do not want to add the burden of more taxes on our citizens, in order to stimulate economic growth amid coronavirus pandemic,” he said.
“FBR tax collection has witnessed a remarkable turnaround during the current fiscal year after posting negative growth of 0.4 percent in FY2019. The overall FBR tax collection grew by 10.8 percent to Rs 3,300.6 billion during July-April, FY2020 against Rs 2,980.0 billion in the comparable period last year. Within the total, the domestic component of tax revenue collected by the FBR grew by 14.7 percent to stand at Rs 2,777.7 billion in first ten months of the current fiscal year against Rs 2,421.1 billion in the comparable period last year,” read the Survey.
“As the economy slowly reopens, it is expected that the adverse impact of COVID-19 will be bottoming out. However, the framework for recovery will depend on various factors like extent of adverse impact on various sectors, duration as well as severity of lockdowns and the associated risks. The outlook therefore carries challenges due to uncertainties associated with it,” stated the survey.
The survey stated that in order to control the price hike, the government made efforts through ensuring smooth supply of commodities, checking hoarding, smuggling and undue profiteering.
“Further, vigilant monitoring of prices both at federal and provincial level was ensured. In addition, to check inflationary impact, borrowing from SBP has been discontinued and restriction has been imposed on supplementary grants to control aggregate demand and ease out inflationary pressures.”