December 31, 2019 (MLN): The year 2019 saw a bang of structural reforms that took a major stride in ensuring the full resumption of global market confidence on Pakistan’s economy.
The year started with the host of regulatory actions as the government had been haunted by a ramshackle economy characterized by aggravating inflationary pressure, sharp decline of the PKR-USD parity and ballooning twin deficits which had been a source of serious pressure. The government was sharp-witted to adopt pre-emptive measures to address the looming challenges.
Here is a look back at some of the major economic events that marked the year for Pakistan.
The most important development that took place in 2019 was the entrance of Pakistan into International Monetary Fund (IMF) Program back in May to further bolster the structural and economic reform process. The government inked a loan deal with the IMF for a period of 3 years. The first tranche of loan was received in July 10, 2019, the second was approved in December 20, 2019.
The IMF program rammed the government to keep a flexible market driven exchange rate vs managed float previously, to expand tax revenues by withdrawing unnecessary tax exemptions to various sector, exercise fiscal austerity and address energy sector woes through tariff hikes, amongst others measures.
The outcomes of the program were close to what IMF had projected. Both fiscal and monetary adjustments have enhanced overall condition of Pakistan’ economy, which was endorsed by Moody’s, a rating agency by changing its outlook on Pakistan from Negative to Stable after 18 months on Dec 2,2019. The change in outlook to stable was driven by Moody's expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility.
IMF in its first staff review in September 2019, endorsed and greatly appreciated the same view, noting that decisive policy implementation since June has started to reverse Pakistan’s large imbalances, indicators were showing improvements in the expansion of the tax base and increase in revenues, preserving financial stability.
Soon after, the IMF and World Bank assured their continued support to Pakistan’s development efforts and economic reform process undertaken by the government. The Managing Director of IMF, Ms. Georgieva stated that the IMF recognized that tough decisions were being made and implemented to stabilize Pakistan’s economy.
On FATF front, a year 2019 will be regarded as unfortunate despite several measures taken by the government to curb money laundering and terror financing. Pakistan failed to achieve any success as FATF, in its plenary meeting held from Oct 16 to Oct 18, decided to keep the country on the grey list until February 2020, after seeing no improvement in combating terror financing. In addition, lest Pakistan fails to comply with the conditions, FATF is left with no other choice but to demote the country to black list.
Keeping the negative points aside, Pakistan has made much progress towards improving its AML/CFT regime, including the recent development of its ML/TF risk assessment, which has been endorsed by FATF as they decided to maintain Pakistan under the grey list rather than put the country into the deep, dark dungeons of blacklist.
The departed year will also be viewed as the renaissance of international investor’s confidence on Pakistan’s economy, as the year witnessed bulk of foreign investment on account of government’s business-friendly policies and concrete measures to boost business opportunities in the country.
Due to the government’s effort in bringing improvements to the business climate led the Pakistan to jump by 28 places to 108, in World’s Bank’s global Ease of Doing Business ranking in October 2019, as compared to the previous year when Pakistan had ranked at 136.
Moreover, the overall Business Confidence Survey of the SBP also indicated improvement during Aug- Oct 2019, as the pessimistic views of business community about the economy marginally decreased.
Another achievement on Pakistan’s front was witnessed in June with the resumption of British Airways flights to Pakistan after a decade long absence as in 2008, in the aftermath of bombing in Islamabad Marriot, the airline discontinued flights to Pakistan.
The other important events that 2019 witnessed included:
- Announcement of the first budget for the PTI government which was largely criticized traders and business community as they strongly opposed government’s new taxation measures.
- Visit of Saudi Crown Prince in February when $20 billion worth investment agreements were signed between Pakistan and Saudi Arabia.
- Deterioration of the country’s ranking on the World Economic Forum’s (WEF) competitiveness index in which Pakistan slipped down three ranks to 110 from 107 in 2018.
- Country successfully paid $1 billion including interest payment at the maturity of Sukuk.
- In September, ExxonMobil, the world’s largest publicly traded oil and gas firm, signed an agreement with Universal Gas Distribution Company (UGDC) to supply liquefied natural gas (LNG) to the country’s transport sector.
- The government discontinued Rs40,000 prize bonds and advised bonds holders to convert their saving instruments either in cash or in other securities till March 2020.
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