From struggling to stable, is Pakistan’s economy heading towards development?

Since the country’s independence in 1947, the economy of Pakistan has emerged as a semi-industrialized one, based heavily on textiles, agriculture, and food production, though recent years have seen a push towards technological diversification.

Pakistan’s GDP growth has been gradually on the rise since 2012 and the country has made significant improvements in its provision of energy and security.

However, decades of corruption and internal political conflict have usually led to low levels of foreign investment and underdevelopment.

Global Appreciation

Recently, global financial institutions and agencies, including World Bank, IMF, Asian Development Bank, Sina Finance (China) and others. appreciated PTI Govt’s efforts for economic revival. 

According to them, Pakistan’s economy is showing signs of recovery and stability due to various reforms and policy measures implemented by the current Govt.

The fiscal consolidation, monetary adjustment policies, and austerity measures have been lauded. Investors’ confidence has restored and it will boost the foreign capital inflows and foreign direct investment in Pakistan.

In its South Asian Growth report, the World Bank stated in Pakistan, gradual recovery to around 4.5 percent growth by 2018 is aided by low inflation and fiscal consolidation. Increases in remittances and stable agricultural performance contribute to this outcome.

In his 2018 book, ‘The Rise and Fall of Nations’, Ruchir Sharma opined that Pakistan’s economy is in its ‘take-off’ stage and termed the future outlook for 2020 ‘very good,’ predicting that Pakistan would transform from a “low-income to a middle-income country during the next five years.”

In 2018, articles by Forbes and Reuters declared Pakistan’s economy to be on track to becoming an emerging market in Asia and affirmed that Pakistan’s expanding middle class is key to the country’s economic prospects.

Meanwhile, the Economist forecasted Pakistan’s GDP to grow at 5.5 percent in 2019, making it the fifth fastest-growing economy in the world and the fastest growing in the Muslim world.

Moody’s retains Pakistan’s rating with a stable outlook

Moody’s Investors Service has confirmed Pakistan’s B3 local and foreign currency issuer and unsecured debt ratings with a stable outlook.

Despite the risks and challenges, Pakistan’s Ba3 local currency bond and deposit ceilings remain unchanged. The B2 foreign currency bond ceiling and the Caa1 foreign currency deposit ceiling are also unchanged.

The short-term foreign-currency bond and deposit ceilings remain unchanged at “not-prime”. Moody’s said the coronavirus pandemic is weighing on economic activity in Pakistan, resulting in lower tax revenue, a wider fiscal deficit, and a higher debt burden for the government

The government’s commitment to its current International Monetary Fund (IMF) loan program continues to unlock a large financial envelope that Moody’s expects will cover its external financing needs over the next 12-18 months and provides an anchor for ongoing fiscal reforms.

The slow economic recovery will weigh on government revenue, keeping the fiscal deficit wide at around 8-8.5% of GDP in fiscal 2021 under Moody’s projections, at similar levels compared to the fiscal year.

The risks to the economy and government finances are to the downside, particularly if more stringent measures are implemented to curb the spread of the virus domestically.

Pakistan’s debts

According to the State Bank of Pakistan (SBP), the total debt and liabilities of Pakistan as of March 2019 are Rs 40,214 billion. During the last financial year in June 2018, the loans increased by more or fewer Rs 10,000.

According to official statistics, our total debt was 16,228 billion seven years ago, as of June 2013. And every Pakistani had a debt of Rs 96,422. When the PML-N left the government, the debt reached 136,000. Today, each of us is indebted to Rs. 181,000.

Compared to Pakistan’s GDP, current debt and liabilities are 104.3% of our GDP. If the situation persists these loans could be more than double the loans of the last 70 years during the PTI regime.

Performance of KSE

Pakistan Stock Exchange (PSX), the premier Capital market Institution of the country, cognizant of its role as a front line regulator working for the benefit of its stakeholders, successfully operated its trading session during a month, thereby facilitating investors, TREC holders and market participants.

The various business functions of the Stock Exchange including trading, settlement, clearing, risk management and IT worked seamlessly and there were no operational or settlement issues encountered, despite the challenges on account of the economic scenario, lockdown due to the potential threat of the spread of the COVID-19 and terrorist attack.

Stock market performance overall remained positive from 1st August  2020,  the market closed at 40,000 points on August 7, a slight decrease of 136.43 points was noted in the business.

In the current scenario, positive indicators of the Pakistan stock market can help stabilize the country’s economy as stock market data indirectly affects dollar prices and gold transactions as well as commodity prices.

Pakistan’s economy in the right direction

Every new government faces enormous challenges and is responsible for economic delivery from the moment it comes into power. It has to make short, medium and long-term plans to improve the lives of the people.

It has to initiate policies to encourage investment. After a few months in power, people must start to notice positive trends. And certainly, after two-year, those positive trends have seen in the economy despite huge challenges like the COVID-19 epidemic and enormous debts.

Pakistan’s economy is shifting towards import-substitution industrialization via supporting the domestic businesses and export-led sectoral development.

Stabilization measures of current govt are yielding results and their results will be visible in the coming years. Macro stabilization and success in the external sector are evident from the economic stats.

The direction is right, policies have been implemented and Pakistan’s economy is finally heading towards the right course.