Hafeez Shaikh presents Economic Survey 2019-20

ISLAMABAD: Advisor to Prime Minister on Finance, Abdul Hafeez Shaikh is presenting the Economic Survey of Pakistan 2019-20, highlighting the key economic indicators and performance of the different sectors of the economy.

In a press conference today (Thursday), Abdul Hafeez Shaikh said that the government had inherited an economy deep in debt, with depleting foreign reserves.

He said that the growth seen in the past government’s tenure was being achieved by taking loans from abroad.

Commenting on the loans, he said, “Pakistan’s loans increased to Rs 25,000 billion and if the total debts and liabilities were added up, they would amount to Rs 30,000 billion,” adding, “No new borrowing was made from State Bank of Pakistan during an ongoing fiscal year.”

He further said, “The global economies have witnessed recession due to the ongoing coronavirus pandemic,” adding, “Pakistan has also been affected by economic shocks caused by the outbreak.”

Report Overview

Similar to the entire world, Pakistan’s economy has also been affected due to COVID-19 outbreak through various channels like a decline in domestic as well as global demand, a downturn in tourism and business travel, Trade and production linkages, and Supply disruptions, etc.

The rapid spread of the COVID-19 virus since February 2020 has brought economic activity to a near-halt. However, the magnitude of economic losses will depend on the intensity and duration of COVID-19.   As the economy has been subjected to demand and supply shocks, the outgoing fiscal year 2020 has witnessed a contraction in economic activity. 

To invigorate the growth, the government announced a Rs 1.24 trillion relief package. The SBP has also taken various steps including reduction in interest rate to 8 percent, refinancing schemes for medical centers, and various incentives for export-oriented industries, etc. 

Growth and Investment:

Abdul Hafeez Shaikh said that the provisional GDP growth rate for FY2020 is estimated at negative 0.38%. He said that GDP will fall by Rs3 billion in the next fiscal year due to the Covid-19 impact.

He revealed that growth in the agriculture sector came in at 2.6 percent, but other sectors reported negative growth.  Industry sector recorded -2.64 percent while services sector recorded -3.4 percent growth due to the COVID-19.  

The Large-Scale Manufacturing (LSM) declined by 5.4 percent during July-March FY2020 as compared to 2.34 percent decline during the same period last year.

Transport and communication growth also came in at -7.1 percent for Jul-April 2020, he said.

The finance and insurance sector witnessed a slight increase of 0.79 percent. The Housing Services, General Government Services, and Other private services have contributed positively at 4.02, 3.92, and 5.39 percent respectively.

Inflation

During the first seven months of the current fiscal year, inflationary pressures were observed and headline inflation rose to 14.6 percent in January 2020.

Consumer Price Index (CPI) inflation for the period July-April 2020 came in at 11.22 percent against 6.51 percent during the same period last year.

The other inflationary indicators like Sensitive Price Indicator (SPI) recorded at 14.3 percent against 4.2 percent over the same period last year. Wholesale Price Index (WPI) recorded at 12.2 percent during Jul-April FY2020 compared to 16.2 percent the same period last year.

Hafeez Shaikh said, “To correct the macroeconomic imbalances, the Government made difficult decisions of upward adjustment in overdue gas and electricity prices, market-based exchange rate adjustments, etc. Furthermore, an increase in commodity prices in the international market also pushed up the domestic prices.”

FBR Tax Revenue

According to the survey, FBR tax collection grew by 10.8 percent to Rs 3,300.6 billion during July-April, FY2020 against Rs 2,980.0 billion in the comparable period last year.

“Various policy measures such as charging sales tax on more items at retail price under 3rd Schedule, reinstatement of taxes on telecom services, an upward revision of tax rates on various salary slabs, an upward revision in the federal excise duty (FED) rates and end of preferential treatment for certain sectors provided an impetus to tax collection were taken during FY 2020.,” the report added.

Current Account Deficit

As per report the current account deficit – during July-March FY2020 – reduced by 73.1 percent to $2.8 billion (1.1 percent of GDP) against $10.3 billion last year (3.7 percent of GDP), the survey revealed.

Exports in the said period increased 1.1 percent to $18.3 billion, while imports reduced by a significant 16.2 percent to $32.9 billion compared to $39.3 billion from a year ago.

As a percentage of GDP, Pakistan’s trade deficit now stands at 6.6pc, considerably down from 8.5pc from a year ago.