ISLAMABAD: The National Economic Council (NEC) meeting would approve on Wednesday (today) a growth target of 2.1 percent for the next fiscal year contingent to favourable weather conditions and post-COVID economic recovery, managing current account deficit as well as consistency in economic policies.
The meeting to be presided over by Prime Minister Imran Khan would also approve a Rs1.5 trillion consolidated development outlay for the next fiscal year.
All the chief ministers, the prime minister AJK and chief minister of Gilgit-Baltistan, the Adviser on finance, the minister for planning, development and reforms, and federal government officials will attend the meeting, and the Planning Commission will inform the NEC meeting about the economic performance for the current fiscal year and prospects for the next.
The NEC is expected to be informed that the prospects for economic growth, even before emergence of Covid-19 phenomenon, were overshadowed by higher inflation and interest rates, negative LSM growth, weaker exports, sluggish resource mobilization, uncertainty surrounding "hot money" inflows, and above all tough International Monetary Fund (IMF) programme-related conditionalities.
The painful and prolonged adjustment programme brought some stability but it has been at the cost of economic growth as higher policy rate, and taxation reforms have increased cost of doing business, and hampered the industrial growth.
The economic effects of the Covid-19 coming from lockdown and reduced spending will be larger than those coming from disruptions to supply chains, and illness-related workforce reductions, and economic growth in Pakistan contracted to -0.4 percent in 2019-2020, when it already had weak economic growth of just 1.9 percent in the previous year.
The Covid-19 further compounded long-standing challenges of the real sector, especially in the industrial and services sectors.
The pandemic has caused multifaceted problems, and has engulfed entire economies besides challenging healthcare systems.
The Planning Commission has acknowledged that the Covid-19 impact on economy is much broader in terms of magnitude, intensity and implications than any other shock in human history.
The meeting is expected to be told that prior to the COVID-19, exchange rate achieved some stability and primary surplus despite massive shortfall in revenue was maintained along with current account contraction of 73 percent in the first three quarters, whereas inflation after peaking at 14.6 percent in January 2020, started to decelerate and foreign exchange reserves increased by US$ 3.6 billion during the first nine months.
Sources in the Planning Commission said that the prospect for the next fiscal year, according to the Planning Commission, predominantly depend upon the control of the pandemic.
Even if the lockdown is completely lifted before the commencement of the next fiscal year, the second-round impact of the Covid-19 will still mar the growth performance of the country. As the quarter-long lockdown this year has severely affected GDP growth this year, the overall GDP growth is expected to pick up in 2020-2021 after the expected rehabilitation and recovery of industrial and services sectors to boost growth prospects.
Inflation is expected to remain in single digit.
The GDP growth for 2020-2021 is targeted at 2.3 percent with contributions from agriculture (2.9 percent), industry (0.1 percent), and services (2.8 percent) subject to favourable weather conditions, post-Covid-19 economic recovery, managing current account deficit, consistent economic policies, and aligned monetary and fiscal policies.
Agriculture sector is targeted to grow by 2.9 percent, industrial sector is targeted to grow by 0.1 percent and services sector is targeted to grow by 2.8 percent in 2020-2021, Fiscal policy during 2020-2021 envisages containing fiscal deficit, additional resource mobilization, controlling current spending and switching to targeted subsidies, while prioritizing development spending.
The balanced monetary policy is aimed at supporting adjustment process to restore macroeconomic stability and manage aggregate demand.
However, the challenge would be to strike a balance between growth and stability in such a way that monetary policy tools may not suffocate economic growth, while containing inflationary pressure.
Average inflation during 2020-2021 is projected at 6.5 percent on the basis of subdued demand and suppressed commodity prices in the international markets, and second round effect of the Covid-19-related economic implications.
Pakistan's exporters will be facing challenging domestic and external environment.
Current account deficit is projected to be at 1.6 percent of the GDP in 2020-2021 with projected growth of exports and imports of 1.5 percent.
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