Global challenges for all developing economies continue to compound. Pakistan is no exception. But that doesn’t mean Pakistan’s economy, struggling with these and other domestic structural problems remains stagnant. The economy is growing, nevertheless.

The rupee has so far lost 16 per cent value against the US dollar since the beginning of this fiscal year on July 1. Structurally, the rupee’s humiliation is due to growing external indebtedness — the PTI government added $20 billion to the stock of the external debt. Cyclically, the rupee’s weakness can be attributed to the economy’s growth that has to be import-reliant because Pakistan imports a large number of industrial raw materials and intermediate and finished consumer goods.

According to the United Nations Conference on Trade and Development (UNCTAD), the cost of freight has risen by 34pc since the Russian invasion of Ukraine on February 24. This, on top of the rising global fuel, food and fertiliser prices poses great challenges for Pakistan. Imports are growing double the pace of exports growth. And, the trade deficit is ballooning.

In eight months of FY22 (July 2021 to Feb 2022), Pakistan’s merchandise trade deficit swelled 82pc to about $32bn from $17.5bn in the same period of FY21, according to the Pakistan Bureau of Statistics (PBS). This happened as imports bill surged 55pc to $52.5bn and exports increased 26pc to $20.5bn.

Thanks to growing domestic demand — and resilience of the export sector — nine out of 15 sub-sectors of large-scale manufacturing posted 1.1pc to 172.2pc year-on-year growth during the seven months of 2021-22

Such a massive increase could have depressed the production of large industries. But thanks to growing domestic demand — and resilience of the export sector — nine out of 15 sub-sectors of large-scale manufacturing (LSM) posted 1.1pc to 172.2pc year-on-year growth within seven months of FY22. The highest increase of 172.2pc was seen in the production of wood products which has a negligible share (0.6pc) in LSM— and the lowest of 1.1pc increase was witnessed in the pharmaceutical industry whose share in the LSM index is 3.6pc.

Other drivers of LSM growth with their individual output growth percentages were textile (1.4pc), food, beverages and tobacco (5.3pc), iron and steel (22.8pc), automobiles (34.4pc), paper & board (8.2pc), chemicals (6.7pc) and leather products (6.1pc), PBS data shows.

LSM output, on the whole, grew 3.9pc in seven months of FY22 over the same period of FY21. Chances are LSM growth will continue till the end of the fiscal year in June. (Monthly data for Jan 2022 shows 7.9pc LSM output growth over that of Dec 2021 and 6.3pc over Jan 2021).

The pace of growth, however, depends on how the current political turmoil pans out. Continuation or discontinuation of the PTI rule and the political situation that follows will have a material impact on industrial activity — in the short run. Although stats about the output of small scale industries are not published regularly, a growing LSM output, rising exports, higher agricultural production, increase in services sector performance and booming street economy — all indicate that small industries, too, continue to produce more.

Net fresh borrowings of the private sector have exceeded RS 1 during the first eight and a half months of this fiscal year

That the services sector is growing is evident from the rates of expansion in sub-sectors of the services sector during the first quarter of FY22 (July-Sep 2021). More recent data expected in April may show strengthening or weakening in the growth trends of these sub-sectors. But in July-Sep 2021, wholesale and retail trade grew 18.8pc; transport, storage and communication 12.2pc, finance and insurance 3.7pc and general government services 8.2pc, according to the State Bank of Pakistan (SBP).

The agriculture sector’s performance is also promising. And, the output of three out of five major crops i.e. cotton, rice, sugarcane has increased. Maize output is expected to remain at the last year’s level. Only, the production of wheat is expected to fall short of the target. “Higher market prices, favourable market conditions and better crop management practices” are having a positive impact on agricultural output, SBP said in its first quarterly report for this fiscal year.

Pakistan produced an estimated 8.9m tonnes of milled rice in 2021-2022 up from 8.4m tonnes in the previous year, according to the Foreign Agriculture Service of the US Department of Agriculture (USDA). The output of cotton this year has so far reached 7.44m bales up from 5.64m bales in the last year, according to Pakistan Cotton Ginners Association. Sugarcane production, too, is marginally up — about 89.m tonnes according to USDA — against that of 89m tonnes last year. And, maize output during this year is estimated to have risen close to the targeted level of 9m tonnes against last year’s below 8m tonnes, according to the initial assessment of the Federal Committee on Agriculture.

Another proxy of the ongoing economic growth is the private sector credit offtake from banks. Net fresh borrowings of the private sector have exceeded Rs1 trillion during the first eight and a half months of this fiscal year (between July 1, 2021, and March 18, 2022), according to SBP.

In the entire last fiscal year, when the economy grew 3.9pc, net private sector borrowings from banks had totalled Rs766bn. Traditionally, banks witness private sector credit retirement during the last quarter (April-June). This means that the Rs1tr credit offtake seen so far could decrease by a few hundred billion rupees by the end of the fiscal year in June. But the SBP has recently revised upwards credit limits for agricultural financing. That is likely to compensate for the traditional last-quarter decline in the private sector borrowings and total borrowings for this fiscal year could stay around Rs1tr.

Published in Dawn, The Business and Finance Weekly, April 4th, 2022