Monitoring Desk
KARACHI: Marred by economic uncertainty and balance of payment crisis in 2019, Pakistan will continue to be confronted with slow economic growth and soaring unemployment during 2020, economist and industrialists say, despite Prime Minister Imran Khan terming 2020 as the “year of growth.”
The PTI government that came into power in 2018 inherited balance of payment crisis on the back of depleting foreign exchange reserves that led to economic uncertainty impacting progress of almost every sector.
By the end of year 2019, the government has successfully overcome the prevailing uncertainty and mitigated the balance of payment crisis but the daunting task of growth and unemployment still remain the major challenges that would determine the future direction of country’s political and economic direction.
“The steps taken to narrow the external deficit have been more successful than anticipated. Fiscal revenues have been strong despite the economic slowdown,” Dr. Mushtaq Khan, a senior economist, told Arab News.
The south Asian nation, after long delays, finally availed the much awaited bailout program from the International Monetary Fund (IMF) in July 2019 receiving $1.4 billion tranche out of the total loan program of $6 billion.
Government’s subsequent actions in response to the bailout program brought around some improvement but not without a cost, said Dr. Ashfaque Hassan, member of the Economic Advisory Council (EAC).
“When we went into IMF program we increased discount rate. When this government came it was 6% and they have increased it to 13.25%. The high interest rate has increased cost of capital that declined production, rupee devaluation has increased cost of imported raw material and by increasing prices of gas and electricity we increased the goods prices,” Hassan said.
“The IMF program has caused de-industrialization as our industrial growth is slowing and it would further slow down causing poverty,” he added.
The large-scale manufacturing (LSM) sector, which shows the growth of large industrial units, continuously depicts dismal performance and has shown negative 8% growth in October 2019. Industrialists say that running businesses at high markup is not viable.
“After adding service charges, the markup rate goes up to 15-16% that is very high and has put industries under pressure,” Mian Anjum Nisar, the newly elected president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), told Arab News.
“No one is contemplating to start new industries under the current circumstances. The entire focus is now on how to help survive the existing industries, which seems like an impossible task at the moment. We are unable to compete with our competitors,” the FPCCI president said.
Economists agree that the interest rate hike was among the measures which created negative impacts at the economic front. “Hiking interest rates too far up, and now being unable to cut them. Slowdown in economy and private sector borrowing from banks were the one of the negatives of the incumbent government”, said Dr. Mushtaq Khan.
“The IMF program can only work by slowing down the economy. Now that the economy has stabilized, the trick is how to revive growth without putting pressure on the external deficit. CPEC must be customized to solve Pakistan’s ‘structural trade deficit’, he suggested.
“Next year, the government will have to enhance exports because they have reduced balance of payment deficit by reducing imports. Next year, it would be difficult to survive on the reduced imports. Identify two to three nontraditional sectors like housing, tourism and agriculture to attract domestic and foreign investment through policy incentives,” Dr. Abdul Qayum Suleri, member of EAC, told Arab News.
He added: “Tax evaders should be brought into tax net with the utilization of technological use. If tax evaders are not brought in the tax net then the IMF’s next review of revenue target meeting would be difficult because in the first review they worked out by non-tax revenue avenues”.
Though the economic growth remains dismal the Prime Minister Imran Khan on Friday reiterated that “2020 will be the year of growth” as he promises incentives and support to the industries.
Look back 2019:
Pakistan’s growth rate declined to 3.3% from 5.8% during the government’s first year and is projected to further declined to 2.4% by the end of fiscal year FY20, according to the IMF assessment.
“During fiscal year FY 19 around 1 million people have lost the jobs and as the growth rate continues to slow down, it is estimated that 0.8 million to 1 million more people would lose jobs during the FY20”, Dr. Abdul Hafeez Pasha told Arab News. “I feel extremely saddened to say that 1 million job loss has pushed 4 million people below the poverty line”, he added.
Though no official data to ascertain the number of unemployed headcount is available, the industrial sector’s production and activity has reduced by 30— 40%, according to industry moguls.
The single digit inflation rate in 2018 increased to 12.28 percent in November 2019. The inflationary pressure hit the rural areas the worst where the income of people has not increased to meet the food inflation at 20 percent, said Hassan.
However, IMF projects that inflation will decelerate slightly to 11.8 percent in FY 2020.
Experts believe that the government’s regulatory action in 2020 will be focused on implementation of ongoing structural reforms under the IMF program that would set the future direction of the economy.
“The economy’s outlook depends on how IMF program targets are met. The next two quarters have challenging targets to increase SBP’s FX reserves and to generate direct tax revenues. The key is whether the authorities stay firm in their commitment to document the economy”, said Dr. Musthaq Khan.
“The major challenge for Imran Khan’s government is not only to achieve economic stability”, Dr. Suleri viewed adding “The major challenge to PM Khan is to keep optimism alive among Pakistanis.”
Courtesy: (arabnews)
