Economy Prospects

Pakistan was making sluggish economic progress before Covid-1; after the spread of the pandemic, the situation got worse. The country’s GDP growth rate, which was 5.53% in FY18 made a dive downwards to 1.91% in FY19, and a stopped at a negative -0.38%. Growth of the industrial sector decreased from -2.27% in FY19 to -2.64% in FY20, with the large scale manufacturing sector being more affected as its growth rate decreased from -2.56% in FY19 to -7.78% in FY20.

Pakistan’s economic growth is expected to reach 1.3 percent in FY2021 and strengthen to an average of 2.7 percent in FY2022-23. The baseline economic growth forecast, however, is highly uncertain, especially given the more-contagious wave of the pandemic currently circulating in the country.

Private consumption was estimated to have picked up over July to December 2020, in part due to the record increase in remittances inflows, social assistance support from the Ehsaas program, the government’s construction package, and a return to pre-Covid mobility levels from September 2020. Investment was also estimated to be recovering, as machinery imports and cement sales, both recorded double-digit growth rates.

Business and industry bore financial losses due to pandemic and lockdown restrictions as traders were unable to deliver orders. International markets were mostly closed and there were no new export orders during the first wave of the pandemic. During this phase, small and medium sized firms were most affected. However, the smart lockdown strategy from the government was effective under which industry was allowed to work under certain conditions.

The trade to neighbouring countries was also affected as exports to all these countries decreased considerably during FY20 as compared to FY19. The major decline was observed in trade with India where exports decreased by more than 90%, whereas exports to Afghanistan decreased by 25.4%. Exports to Afghanistan and China showed positive recovery in FY21 while exports to other neighbouring countries declined further. Overall, exports decreased from $ 24.25 billion in FY19 to $ 22.53 billion in FY20. However, in FY21 exports recovered to $ 25.63 billion.

On a positive note, sectors such as healthcare products and pharmaceutical have shown a remarkable turnaround in their exports. The exports of leather garments, surgical instruments and engineering goods increased. This shows that despite the challenging situation, non-traditional sectors possess potential for growth. The services sector, particularly telecommunication, IT and information services grew significantly and achieved the export target of $ 2 billion.

By promoting the local engineering industry, manufacture of products which are currently being imported can be done in Pakistan and this will lessen our import bill. The proposals made in the budget of 2021-22 regarding decrease in duty on raw materials should be implemented to promote trading activities. The Pakistan Leather Association has requested the government to continue duty drawback on local taxes and levies scheme. Continued supply of energy at competitive rates is a long demand of the industry which should be fulfilled to bring down cost of production.

Trade agreements with various countries, including Bahrain, Turkey, Uzbekistan and Thailand, are in final stages and once done, the move will boost export volume to these countries. The Pakistan-Uzbekistan transit trade agreement will be initiated soon and will give access to Uzbekistan from Pakistan’s ports and provide access to Pakistan for Central Asian States. Once trading activities on these routes start, Pakistan will have greater access to these markets. Besides, there is a need to normalize trade relations with neighbouring countries to revive export levels.

The exports of healthcare products and pharmaceutical can be further strengthened through changing trade preferences and reliance on the traditional export sectors. According to a report, the pharmaceutical sector has a potential of $5 billion exports, which can be achieved through an effective regulatory environment. IT is another sector which is progressing with leaps and bounds and has further potential to grow. Special Technology Zones can spur the growth process of the ICT sector.

In the financial crunch situation, support from the government becomes vital. Timely and effective relief is required by the business community to overcome financial losses. Payment of tax arrears at the earliest can provide much needed relief to the industry. The stagnant performance of the agriculture sector has forced Pakistan to rely on imports to meet food demand. Pakistan needs to promote its agriculture sector to become more self-sufficient in food products. It will also help to curb the import bill which has soared up by more than 50% and will create more economic prospects within the country. Support for farmers in purchase of basic inputs including pesticides, fertilizers and machinery, can help in increasing output levels.