Endurance for Growth – Journal
Will Pakistan manage to achieve targeted economic growth in this fiscal year while struggling to maintain the fragile stability that is eluding it?
The positives include the inherent resilience of the economy and proactive public policies laden with stimulus measures that generated the surprising growth of the past year and helped shift the focus of public policies from consolidating stability. to growth.
And no less important is the notable performance of Large Scale Manufacturing (LSM), marked by a more noticeable tilt in the role LSM is playing in the recovery relative to the capital market. The growth in inflows to the Pakistan Stock Exchange (PSX) appears to be faltering.
Morgan Stanley Capital International (MSCI) has downgraded the PSX of its emerging markets to the Frontiers Markets Index. Pakistani companies listed on stock exchanges included in the MSCI index would have a reduced weight of 1.9%, as MSCI claims the PSX no longer meets size and liquidity standards.
The PSX had a weight of 9pc in the frontier markets index from 2008 to 2017, recalls Tahir Abbas, director of Aba Ali Habib Securities Research.
Trade opportunities for Pakistan with Afghanistan and region could open faster than initial expectations
Contrary to market participants’ opinions that the downgrade will lead to more inflows of foreign portfolio investment, Syed Shabbar Zaidi says, “The MSCI decision is a wake-up call.
While the country’s manufacturing sector still has a long way to go, in contrast, the LSM grew by 14.85% in 2020-21, driven by an expansion of the food, textile, food and beverage industries. automotive and construction, also partly due to higher textile export orders.
What is still essential in this area for policy action, as one perceptive analyst has pointed out, is that without “productivity reforms” not enough dollars can be earned or saved to close the growing gap in the economy. trade.
However, new official efforts have now been made to shore up the slump in spending on the federal public sector development program.
From July to September 3, financial releases reached a record 392.69 billion rupees in two months, representing 43% of the annual public sector development program budgeted at 900 billion rupees for ongoing projects, according to the latest. update from the Ministry of Planning, Development, and special initiatives.
This financial clearance in two months greatly exceeds the ceiling of 20pc on the financial release during the first quarter of 2020-21. According to the last procedure, the disbursements of the total development funds budgeted annually would be divided equally into two semi-annual installments.
As external pressures return, risk growth is increasing, but some mixed trends keep policymakers on a growth path.
First, the foreign trade figures. The July-August trade deficit widened 120 percent to $ 7.5 billion from the previous year, with imports recorded at $ 12.1 billion and exports at $ 7 billion.
An important balancing factor is the increase in remittances from overseas Pakistanis, which simultaneously increased by 10.4% to reach $ 4.86 billion. This is the sixth consecutive month that remittances have been recorded around an average of $ 2.7 billion and the 15th consecutive month they have exceeded $ 2 billion, according to central bank data. .
But in a setback on September 14, the dollar hit a record high of Rs 168.94, which reportedly shattered investor confidence in the stability of the local currency and exchange rates while increasing risks for the growth.
Finance Minister Shaukat Tarin said “speculators” created artificial demand while admitting there was pressure on the exchange rate due to the balance of payments, adding that the import bill was constantly being reviewed. . In his opinion, the approximate real exchange rate should be between Rs 166 and Rs 167.
While remaining within the field of preconceived ideas, the PTI government has adopted a flexible policy to deal with both the problems of weak growth and fragile stability.
Space was provided by a “pause” and “pause” in the International Monetary Fund’s program and substantial liquidity injected twice by the Fund to consolidate Pakistan’s dollar reserves and service the external debt. increasing after the outbreak of the pandemic.
An unconfirmed press report says Pakistan and China have agreed to hold talks to roll over the $ 3 billion China-Pakistan Economic Corridor debt. And the International Islamic Trade Finance Corporation (ITFC) – an affiliate of the Islamic Development Bank – is reportedly providing $ 600 million in financing this month.
The payment would be part of the new $ 4.5 billion deal signed by the two sides in June this year to finance imports of oil, liquefied natural gas and fertilizers over the next three years (2021-2023) .
There is no doubt that foreign debts will increase, as will the cost of servicing the debt in rupees, however, the solution lies in production-driven growth to earn and save money.
Increasing external debt in absolute terms is unlikely to push up the external debt-to-GDP ratio if the recovery consolidates, as last year’s surprising growth rate shows.
A positive development, as some analysts note, is that the country’s security situation on its eastern borders has eased, contrary to previous alarming concerns of a possible consequence of a poorly perceived threat of an imminent civil war in Afghanistan. .
The good news for Afghanistan and the region is that at the United Nations conference in Geneva on September 13, donors pledged $ 1.1 billion to meet Kabul’s “urgent needs”.
US State Department spokesman Ned Price recently said that “the United States is reviewing its bilateral aid to the Afghan government.”
Washington has been advised by Qatar and Pakistan to unfreeze Kabul’s financial holdings, arguing that the Afghan people deserve to be helped despite what is happening in the political landscape.
Afghans are enterprising people whose creativity has been enriched by experiences of protracted wars, like what happened in Vietnam. In the midst of a raging war, Afghans have distinguished themselves in expanding informal cross-border and regional trade that has ensured the delivery of goods to buyers’ doors in neighboring countries.
The first surge in economic activity is likely to come from the resumption of formal domestic, transit and regional trade, as Afghanistan returns to sub-par economic activity.
Trade opportunities for Pakistan with Afghanistan and the region may open up faster than initial expectations and may prove to be a positive factor as early as possible in our long-term struggle for sustained and stable economic growth.
Posted in Dawn, The Business and Finance Weekly, September 20, 2021