$31bn exports, $32bn remittances and Rs6trn revenue likely in full 2021-22: Govt expects 5pc growth in 2HFY22

ISLAMABAD: The Finance Division said it is expecting the growth to stay at five percent, exports $31 billion as well as remittances $32 billion and tax collection of Rs6 trillion besides reduction in trade deficit to reduce in second half of fiscal year 2022.

While issuing performance report of year 2021 on Friday, the Finance Division said that “Year 2021 - Resilient now ever!”

Sustainability: Pakistan boom-bust lifecycle appears cyclical than sustainable in past. This is reflected from past global commodity, political or economic shocks of 1998, 2009, & 2018, where economy got busted in very short interval of time

Unlike past, PTI government has managed to bring the sustainability to macroeconomics. Despite the most devastating health and Economic Shocks of century, ie, Covid-19 and recent multi decade high-price commodity shock, Pakistan economy has displayed the greatest resilience, which is unprecedented in the 74-year history of Pakistan.

Pakistan’s macroeconomic performance was widely accepted by all international macro-economic Financial Institutions (Including IMF, World Bank, ADB, Moody’s, S&P and Fitch etc.)

The government’s response to the pandemic has been widely acclaimed and recognised. According to The Economist, Pakistan has been ranked number 1 in the ‘Economists’ world normalcy index as the country has lifted most of its Covid-19 restrictions imposed to curb the virus spread.

Energy items: there’s no reduction in trade deficit intensity

The Economist normalcy index offers some evidence about how people are responding to restrictions in real-time. Pakistan is followed by Nigeria, Britain & Germany on the list which was updated on November 5, 2021

Pakistan has rolled out the largest social safety net in Pakistan’s history. According to World Bank report “global social protection responses to Covid-19” (May-2021) Pakistan ranks 4th globally in terms of the number of people covered and 3rd globally in terms of the percentage of population covered amongst those that covered over 100 million people; the World Bank has stated that only few countries have attained impressive six-digit levels in this regard. Pakistan’s Ehsaas Emergency Cash is one of them.

Response to Covid: It is important to note that, Pakistan’s response to COVID is most effective and timely than rest of the world, despite the fiscal constraints. The Vision of Prime Minister Imran Khan of implementing the smart lockdown is the most appropriate, which allowed the economy to grow. Followings initiatives provided by PTI government & SBP for the relief of the masses.

A fiscal relief package of Rs1,240bn to provide relief to neutralize the socioeconomic impact of Covid-19.

Overall Rs2,073bn relief package by SBP

Introduced Running Finance Facility for Hospitals and new Industrial Investments (TERF)

Introduced Rozgar Scheme to prevent layoffs by financing wages and salaries of employees

Provided relief for loan restructuring to borrowers

SBP reduced the policy rate by 625bps

Electricity bill concessions Rupees 46 billion and to SMEs Rupees 50.6 billion

Reduction in winter tariffs @11.97/kWh & @12.96/kWh in 2020 & 2021

Relief to 8mn families under Ehsaas program from 3.7mn before PTI government

Total release of Rs232 funds under Ehsaas program in 2021 from Rupees 102 billion in 2014

106bn under Mera Pakistan Mera Ghar, low-cost housing scheme loans have been approved by banks

Growth: Importantly, economy performed above expectations; GDP growth 4%, tax collection exceeded above targets, reserves improved, current account reported lowest since 2011

Target surpassed: Nov tax collection reaches Rs476bn mark

The key to note that this growth was achieved when rest of the world was encountering massive output contraction. India (-8%), UK (-10%), USA (-3.7%), Iran (-6.5%)

While Pakistan growth was broad-based. Against 2.1% target the growth came in at 3.94%.

Agriculture at 2.77%, Industry 3.57%, and Services at 4.43%

It is pertinent to note that record bumper crops witnessed in 2021 and the trend likely to continue next year as well

Rice came in at 8.4 million tons (last year 7.4mn tons), Maize 8.5 million tons (last year 7.9 million tons), wheat 27.5 million tons (last year 25.2 million tons), cotton 7.1 million bales (last year 9.1 million bales)

In 2022, sugarcane is expected at 87.7 million tons, wheat 28.9 million tons, and Rice 8.8 million tons.

Corporate Sector:

Interest rates remained lower for most of the year at 7%, which gave impetus to private sector

Aggregate profit after tax of KSE-100 in 3Q of 2021 is reported at Rupee 258 billion. The Highest in the last 10 years

The growth is broad based, corporate sector has posted the record profitability of Rupees 929 billion in FY21, up from Rupee 587 billion in 2018

Overall, 247% growth in companies’ incorporation (69,380 companies during July-2018 to Dec-21 reported, compared to 19,996 companies in the last three years of PMLN government)

44% of total 157,000 companies registered in Pakistan incorporated in the PTI’s 3 years

Sector wise, Real Estate (494%), IT Sector (194%), & Tourism (136%) growth witnessed from 2018-21

Record number of 19 IPO’s worth Rupee 85 billion executed in the last three year

External Sector: Remittances and exports are above than pre-Covid level of 2019-20. This in turn, current account deficit posted 10 years low of US$1.9bn in FY21

Exports of Goods came in at $25.6bn, up 14% higher in FY21.

First time in the last ten years, exports indicators are looking promising and the average monthly exports now targeting US$3bn from US$2bn as in PMLN time

Jul-Nov remittances post 10pc growth YoY

Exports of services are another area where significant improvements have been witnessed. Services exports in FY21 also increased by 10% to US$5.9bn

IT sector exports have doubled from PML-N time and expected to reach US$3.5bn to US$4bn, up 300% by the end of this government’s term

While remittances have piled up to record level to US$29.4bn, from US$23.1bn year earlier

The other hallmark of PTI government in its three years was the contraction of unnecessary imports and imports substitution. However, recent commodity price shock has jacked up the imports

As per our analysis, the 80-85% of import surge is due to price affect and 15-20% is quantitative in line with economic growth

Recent policy actions are already fetching results and import growth is expected to slow down. Moreover, given the better-than-expected agriculture crop outlook, the food import will be curtailed.

Fiscal: Federal taxes registered a record growth in FY21 and came almost Rupee one trillion more than 2018 level at Rupee 4,764 billion

Similarly, the growth in non-tax revenue has witnessed a massive increase to Rs1,630 billion

Overall, the deficit situation has improved to 7.1% of GDP from 8.1% in FY20

The primary balance is also contained to 1.4% from 1.8% of GDP year earlier

This year tax situation is even better than last year and Pakistan is likely to post Rs6 trillion tax target and more than Rupee 1,200 billion in a single year

So far due to excellent tax collection the primary balance has reported a surplus of Rupee 206 billion in the first four month of current fiscal year

Inflation: Following Budget FY22, global commodity prices surged to unprecedented levels, triggering pressure on currencies and pushing higher inflation around the world

•As per FAO world food prices climbed 27%, 10-year peak

•CRB Index climbed 37.67% year-over-year

•Bloomberg Commodity index increased 28.4% in a year

•USA CPI climbed by 6.8% in November, the fastest pace since 1982

•German Inflation at 5.2% in November, highest rate since June 1992

•UK 10-Year high inflation witnessed at 5.1%

•China factory inflation is at 26 years high at 12.9%

•India WPI hits record high at 14.23%

•CPI in Pakistan cloaked in at 11.5% in November 2021, while it is interesting to note that recently the price of food is witnessing a significant decline, onions down 25% YoY, Pulse Moong 25%, Tomatoes 17%, Eggs 10%, Chicken 10% and Potatoes 8% while the prices of wheat flour, rice and sugar depicted a stability

Ehsaas Program: Under Ehsaas Emergency Cash Program, the government has disbursed Rs 179.3 billion to 14.8 million beneficiaries to provide immediate cash relief of Rs 12,000 whose livelihood has been severely affected by the pandemic

Other progress: The government has cleared the outstanding power sector dues in tune of more than Rupee 220bn and refunds of more than Rupee 250 billion

Power supply remained uninterrupted, resultantly exports and industrial output growth remained in double digit

After very long-time rural economy has strengthened with record growth in crop yields and prices

The country is also witnessing the construction boom led by construction package announced by Prime Minister

More than Rupee 1,000 billion worth projects were approved in one year

Construction of Dams initiated which will double the water storage from current 13 million acre feet and addition of 10,000 mega watts of electricity

The country has scored overall well on health front, more than 150mn vaccines have been administered. Close to US$2bn spent on vaccines without provincial contribution

Highest number of social and economic programs launched e.g Kamyab Pakistan, Sehat card, Ehsaas Rashan, KamyabJawan, Mera Pakistan Mera Ghar, Kissan card, etc

Introduction of winter relief tariffs to industries, commercial and households

Introduced the Textile, Auto, and SME Policies

Focus on non-conventional products and market exports for diversification especially on IT sector related incentives

Implemented the toughest FATF action plan in limited period

Better administrative controls and productivity growth brought prices of essential food items down e.g. Wheat flour, Sugar, onion, potatoes, tomatoes, and pulses

Outlook: Going forward, we expect the growth to stay at 5%, exports $31bn, remittances $32bn, taxes Rupee 6,000bn, trade deficit to reduce in 2HFY22

Recent pressures on Current account are due to commodity shock but risks are receding due to timely policy actions.

Copyright Business Recorder, 2022