June 10, 2021 (MLN): Pakistan’s economy witnessed a V-shaped recovery as GDP rose by 3.94% in FY21 as against the target of 2.1% set last year, noted the Economic Survey 2020-21 published by the Ministry of Finance on Thursday.
This is in contrast to the economic contraction of 0.47% in FY20 caused by the Covid-19 and modest growth of 2.08% in FY19. The latest 3.94% figure is driven by activity across all sectors with agriculture higher by 2.77% from the targeted number of 2.6% while services jumped 4.43% as against 2.8%. However, the biggest change was noted in the industry which posted a remarkable turnaround of 3.57%, far beating the target of 0.1% set last year in the wake of coronavirus-induced lockdowns. The upbeat performance from the industry was led by large-scale manufacturing which rose almost 9% to 150.53 during July-March FY21, as per the latest Pakistan Bureau of Statistics data.
Within agriculture, the country went through some unique trends as production of the key crops actually fell significantly and the country had to turn towards foreign markets for part of the wheat and raw cotton needs. The production of cotton decreased to 7.1m bales from 9.1m, posting a decline of 22.8%. This was mainly due to a decrease in the area sown (2.1m hectares in FY2021), down 17.4% compared to 2.5m. “One reason was Locust attack while area cultivation under sugarcane has been increased to 1.2m hectares (1m hectares last year) showing growth of 12.1%. This implies that farmers are switching towards sugarcane production. The decline in cotton crop also reduced value added in Cotton Ginning by 15.6 percent.” This switch towards more cash-generating crops like sugarcane has been well-documented and could potentially pose problems not only with respect to the country’s food security but also with the increasing import bill.
The survey attributes this rebound in economic activity to a number of factors such as the government’s Ehsaas programme whose allocation was increased to Rs208 billion in FY21 from Rs189bn the year before. It also introduced a construction amnesty scheme and earmarked an Rs36bn subsidy for the Naya Pakistan Housing Scheme. Coupled with a reduction of Rs0.5 in federal excise duty on cement, it helped revive the broader real estate activity.
It also pointed out that the interest rate of the much-hailed Export Finance Scheme (EFS) was maintained at 3% and that of Long-Term Finance Facility (LTFF) brought down to 5% from 6% and its per-project limit doubled to Rs5bn from 2.5bn. The total subsidies under the credit to exporters outstanding under both schemes is approximately Rs660bn.
Commenting on the sustainability of the newly-returned growth, the report stated that, unlike the previous years where the external account got out of control with sharp twin deficits, the situation is different this time around. This was primarily led by the turnaround in the current account which posted a surplus of $773 million in July-April FY21, from $4.657bn in the entire 2019-20. However, the trade balance has continued to widen to reach $18.657bn as the increase in imports outpaced that of exports.
However, total investment as a percentage of GDP edged lower to 15.2%, due to a major decline in the share of private investment. To improve things on this front, the publication highlights: “The government is taking measures to increase both savings and investment to augment the employment-generating ability of the economy as well as raise resource availability for investment. In this regards Kamyab Jawan Scheme, Rozgar scheme, National SME Policy Action Plan 2020, Export Finance Schemes, and Construction Package are some notable measures taken by the government which will accelerate investment in coming years as well.”
The fiscal year also marked Pakistan’s return to the international capital markets in April 2021 after a gap of over three years by successfully raising $2.5bn showing the confidence of international investors in Pakistan’s economy. Since then, Water and Power Development Regulatory Authority has also floated a $500m green bond.
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