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Economy on the threshold of a boom

There is ample discussion these days regarding the current economic performance of Pakistan and it is being contended whether the worst is over as being claimed by the government.

Well, there are plenty of reasons to believe that something good is going to turn up as regards the economy. Some of them are the retention of Pakistan in its Emerging Market Index by MSCI which is the New York-based leading provider of research-based indexes and analytics; modest hike in exports, deceleration in import of major imports such as oil and food, turnaround in the current account, anticipated lower inflation in a year or so, retreat in the discount rate and monumental amount allocated for agriculture credit disbursement.

The Pakistan Stock Exchange produced negative returns of 15% and 8% in 2017 and 2018 which was a major concern for the investors. However, recent recovery of 9,894 points, which is whopping 35% from the worrying level of 28,670 points has bolstered the confidence of myriads of investors who seem to be looking towards the 53,127 points, the highest ever, witnessed on May 24, 2017. Some investors are pretty upbeat about the dramatic recovery in the wake of the turnaround in the economy.

The oil import bill has been a substantial glitch for the economy. Pakistan with a GDP of less than $300 billion has been paying over $15 billion on average for the import of oil every year. It has been quite soothing during the first two months of the current fiscal that there is a hefty decline of 26% in the import of oil. This has helped address the current account turbulence. Moreover, a modest rise in the export of textile and clothing has also contributed to the well-being.

The staggering news for many was that the government achieved a current account surplus worth $99 million last month after a lapse of five years. Hats off to those who made efforts and have worked on it. They need to be complimented so that they may further work on sustainability and perseverance. The monumental current account deficit at $19.9 billion in FY18 was brought down to $12.75 billion in the last fiscal year, which deserves kudos. There is a likelihood of current account surplus by the end of this fiscal year, which would be a tremendous coup on the economic front. There is significant improvement as far as trade deficit is concerned. The deceleration of 33.5% in trade deficit during the first four months of the current fiscal year augurs well for the economy. There is no denying that trade deficit has put the economy under strain over the period of last decade. Pakistan’s trade deficit was $20 billion in 2012-13. It was unnerving to witness the trade deficit in merchandise reaching $32.58 billion in 2016-17 and then all-time high of $37.7 billion in 2017-2018. However, it was narrowed to $31.82 billion during last fiscal year.

 

There is every likelihood to believe that the Herculean task of decelerating the trade deficit during the current fiscal would pay off, which would eventually boost the economic growth creating fiscal space for the government. The economic managers need to look at the suggestions of signing free and preferential trade agreements with various countries. It is widely believed that FTAs and PTAs have rather added to the misery of trade deficit instead of accelerating the exports of Pakistan. Let’s examine the FTAs signed with China, Sri Lanka and Malaysia as well as preferential trade agreements (PTAs) signed with Iran, Indonesia and Mauritius. Generally, FTAs as well as PTAs signed with large and small economies benefit the small economies relative to the large economies, however, it is contrary in case of Pakistan. The individuals at the helm of affairs have to connect the dots in this regard.

There is a possibility of ease in the discount rate which is at robust 13.25%, to the detriment of the manufacturing. There is long-standing demand of the industry to lower the discount rate to the single digit so that local investment may soar.

Pakistan, being an agrarian economy, has presented dismal agriculture growth recently. Agriculture growth at 0.85% against the target of 3.8% during last fiscal filled many with dismay. However, the current year may prove better in terms of yield and growth. The recent step of setting the credit target for the agriculture sector at Rs1.35 trillion may help the growth in the sector.

The foremost thing at present is the positive sentiment, which is rather essential for the economic growth.

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