ISLAMABAD: In its ‘Monthly Economic Update and Outlook’ report released on Friday, the ministry of finance says that as the third wave of Covid-19 pandemic is posing the downside risk, the government’s timely measures will be helpful in continuation of economic recovery along with decelerating inflationary pressure and preserving external balance.

The expectations of economic recovery are strengthening on the basis of improvement in business confidence which is evident from the industrial growth. The government’s fiscal stimulus has thus succeeded in improving economic as well as social progress, according to the finance ministry’s report.

The fiscal performance of first seven months of the fiscal year 2020-21 showed that the fiscal consolidation policy helped in preserving fiscal discipline, increasing revenues and controlling expenditures.

On the revenue side, the report says, FBR tax collection has continued to improve, having exceeded the eight-month targets by Rs17 billion. This performance indicates that it will remain on track and the current fiscal year would end up meeting the set target.

Monthly update and outlook highlights risk posed by new Covid-19 wave to economy

However, it says, the increase in Covid-19 infection and related containment measures may pose certain challenges, especially the expenditure side may come under pressure.

In the agriculture sector, the report says, the downside risk to cotton production will hamper targeted growth. Weather conditions during March will be crucial for achieving final wheat production. In irrigated areas, the crop condition is by and large satisfactory, and the projection of wheat crop production is better as compared to last year’s crop, report says.

The year-on-year growth rate of large scale manufacturing (LSM) remains positive since July 2020 and the growth of industrial activity is in line with the strong cyclical recovery observed in Pakistan’s main trading partners. It is expected that this recovery will continue in the coming months, providing the absence of a new upsurge of Covid-19 that may require restrictions on economic activity.

The large-scale manufacturing has surpassed its pre-Covid level of production in January, witnessing 9.1 per cent growth on year-to-year basis, while on month-to-month basis the LSM increased by 5.4 per cent in January this year.

During July-February period, exports of goods and services, as compiled in the balance of payments, reached $19.9 billion as compared to $20.3 billion in the same period of last year. Likewise imports of goods and services reached $37.3 billion this year against $35.7 billion last year, which represents an increase of 4.5 per cent. However, in February 2021, 3.2 per cent growth was seen on year-on-year basis.

Exports are expected to increase following export-oriented government policies, while imports are also expected to increase further on the back of recovery of the domestic economy, recent increases in international commodity prices and imports of food items to stabilise domestic food markets. Thus, trade balance is expected to slightly deteriorate but expected strong inflows of remittances will be able to cover the trade deficit.

During the first nine months of the current fiscal year, money supply observed an expansion of Rs962.4 billion against Rs946.9 billion last year. With money supply, net foreign assets of the banking system increased by Rs597.3 billion against Rs1,152.6 billion last year, whereas, net domestic assets witnessed the expansion of Rs365.1 billion, a contraction of Rs205.7 billion last year. The private sector credit increased by Rs365.9 billion against Rs244.9 billion last year, the report says.

Within loans to private sector business, significant demand was recorded for fixed investment during the July-Feb period of FY2021 primarily due to accommodative policy environment, the impact of SBP refinance schemes and relief packages, improved business confidence and substantial growth in LSM sector. Under fixed investment loans, the manufacturing of food products and textile has increased their borrowing compared to last year.

The report further says that exports during the July-February period increased by 4.4 per cent to $16.3 billion as against $15.6 billion last year, while the textile sector exports increased by 6.7 per cent over the last year. The value-added exports increased by 11.4 per cent. The decrease in quantities of value-added exports was compensated by higher unit price. The total imports in July-February period increased to $33.9 billion as against $31.5 billion last year.

The foreign direct investment during July-February period of the current fiscal year was recorded at $1,300.4 million as against $1,854.5 million last year, while the total foreign portfolio investment registered an outflow of $388.5 million during July-February period. Countries with major inflows in FDI are China ($800 million), The Netherlands ($179 million) and Hong Kong ($122 million).

In July-February period, remittances rose to $18.7 billion as against $15.1 billion last year, with a growth of 24.1 per cent. On year-to-year basis, remittances were recorded at $2.3 billion in February 2021 showing an increase of 24.2 per cent as against $1.8 billion in February 2020.

Workers’ remittances remained above $2 billion for nine consecutive months in February 2021. The major sources of remittance are Saudi Arabia, UAE, US and UK.

Published in Dawn, March 27th, 2021