Despite Pakistan’s success in overcoming the global pandemic and succeefully reviving its economy with an expected economic growth nearly 4% in 2021, exceeding initial projections, the country has a major challenge of reducing the Public Debt to GDP ratio to a healthy level.
Economic Growth predictions
The State Bank of Pakistan (SBP) originally predicted a 3% growth in GDP, albeit the International Monetary Fund (IMF) and World Bank predicted 1.5% and 1.3% growth, respectively. The country’s per capita income will increase 14.6% from $1,405 in 2020 to $1,610 in 2021.
The services sector, which is forecasted to grow by 4.43% in 2020-2021, is contributing for the majority of the growth. This is certainly extraordinary for a country like Pakistan and that country has succeeded in expanding its services sector. The agricultural as well as agricultural sectors are predicted growth 2.77% and 3.57% respectively.
Government’s steps
The terrible plight of India with reported positive cases of 28,441,986 and 338,013 deaths, has given a warning signal for government, authorities and medical specialists in Pakistan. Owing to the higher level of awareness, particularly, through social media, Pakistani citizens have started to wear masks, though they were reluctant to do previously.
Last year, the country recorded a surge in cases during the Eid-festival. However, the government was quick to move this time, imposing partial lockdowns, closing non-essential enterprises, and prohibiting domestic tourism. These measures taken by the government helped the country avoid a spike in cases. But, the restrictions imposed have jeopardized the labor class’s livelihoods.
Planned Vaccination
The government expects to have vaccinated 70% of the population by the end of 2021. Up to now, 5.3 million citizens have already been vaccinated. With the assistance of CanSino Bio, a Chinese company, Pakistan has developed its own “PakVac” vaccine, bolstering the country’s vaccination program.
Stock Market Sentiment
Last week Pakistan recorded the highest trade volumes on the Pakistan Stock Exchange at 1.56 billion shares and 2.21 billion shares on May 26 and May 27 respectively. Investors are optimistic due to the populist budget proposal and improved growth forecasts.
Economic Growth
According to SBP’s Governor, Reza Baqir, the unexpected growth in GDP is, primarily, due to accommodative monetary and fiscal policy. SBP hurriedly reduced its policy rate by 625 basis points to 7% and unleashed a stimulus equivalent to 5% of GDP. Besides, the governor said that the government was able to control the coronavirus situation with only 12 new cases per million, compared to 62 new cases per million recorded globally.
Public Debt to GDP ratio
According to the IMF’s world economic outlook, Pakistan’s public debt to GDP remained broadly unchanged in 2020 over the previous year, as recorded in Bloomberg. This statistic for most emerging countries up by 10% during the global pandemic. Reza Baqir explained that this was caused by a “prudent fiscal and aggressive monetary policy.”
Inflation in Pakistan
Pakistan recently recorded a CPI of 11%, up from 6% a few months ago. The country hopes inflation to reach between 7% and 9%, with experts predicting that it will be closer to the higher end. According to Reza Baqir, recent high inflation was caused by a negligible number of products such as energy and food. Due to supply-side factors, he described these factors as “one-time”. However, officials are prepared to respond quickly to demand-side pressures if they arise.
IMF Aid Program
The IMF has granted the country a $6 billion Extended Fund Facility (EFF). According to Reza Baqir, who worked at the IMF for nearly 18 years, Pakistani economy is in the transitional process from stabilisation to growth. He stated that the government succeeded in converting a $19 billion current account deficit into a $900 million surplus and at the same time, more than doubling the country’s foreign reserves from $7.2 billion to $16 billion. Significantly, these objectives were realised not through borrowing, but through “high-quality measures.”
Perhaps, the bottom line of the success lie in the prudent management of the global pandemic and the success of the IMF program, as evidenced by the growth in GDP to 4%, among other things, demonstrate, in no uncertain terms, the Pakistan’s ability to grow and serve the global prospective investors a good investment opportunity.
What is noteworthy is that Pakistan is, among other Commonwealth Nations, a country that was widely expected to record a lower rate of economic growth due to the multiplicity of issues including heavy foreign debts burden and rampant corruption. Pakistan’s example shows, that economies of the region could be fixed with prudent policy initiatives coupled with well-executed planned programmes to contain and curb the global pandemic.
