The Executive Board of the International Monetary Fund (IMF) has agreed to release the next tranche of $500 million for Pakistan after approving four pending reviews of the country’s economic progress, after which economic indicators of the country appear to be moving in the right direction.
Pakistan’s stock market situation, economic indicators and data from various sectors, including gold and dollar prices, are setting a new economic direction for the country. Let’s take a look at the economic situation of the country.
Approval of $500 million for Pakistan
The approval resuscitates the $6 billion IMF program after it remained suppressed for about two years. The endorsement followed some rough decisions taken by the government in Islamabad to alleviate the country’s economy.
The steps included the imposition of Rs140 billion taxes, an abrupt rise in electricity bills, and agreeing to grant extraordinary autonomy for the State Bank of Pakistan (SBP). The IMF’s executive board endorsed the staff-level concurrence, reached between the Fund’s team and the government of Pakistan earlier this month.
The board’s approval has paved the way for the release of the $500 million 3rd loan tranche. Out of the $6 billion, the IMF has previously disbursed $1.45 billion in two tranches, bringing the total payments to $2 billion.
The IMF earlier had put off a board meeting for the approval of the second review after the government in Islamabad unsuccessful to announce a mini-budget for readjusting the economy. Later, both sides in the same opinion to club the pending second, third, fourth and fifth appraisals of the program in February this year. The separate completion of these assessments would have led to expenditures of $2.2 billion, which the IMF’s board has now reduced to just $500 million.
Pakistan had completed approximately 90 percent of its current FATF action plan with 24 out of 27 points rated as largely addressed and the remaining three points moderately addressed.
If Pakistan does not meet the criteria laid out by the FATF, it could fall to the blacklist, potentially being unable to obtain financial support from the International Monetary Fund (IMF), World Bank, the Asian Development Bank (ADB), and other international institutions.
Pakistan still has a long way to go to rid ourselves of the menace of terrorism, corruption and we should not lose sight of the real objective. Confidently, FATF will acknowledge our efforts in this respect.
Tax collections and FBR reforms
In many of his speeches, Prime Minister Imran Khan has complained about the low number of taxpayers across the country. An important point of the national economy is to improve tax collections for which the FBR is undergoing reforms.
The PTI government narrowly missed the first half tax collection target despite setting a very low milestone, leaving a gigantic task of collecting Rs2.8 trillion with a growth rate of 45% in the remaining period of the current fiscal year 2020-21.
From July through December of the fiscal year 2020-21, the FBR provisionally collected close to Rs2.2 trillion in taxes. It had set a very low target of Rs2.210 trillion, which was hardly 44% of the annual target and needed a mere 5.7% growth, even lower than the pace of inflation.
The stock market, gold and dollar situation
According to the latest situation, the Pakistan Stock Exchange is trading at 45,782 points. The KSE 100 Index has recorded an increase of 238 points. The Pakistan Stock Exchange (PSX) witnessed a bullish trend yesterday and witnessed historic trading.
The value of the shares traded reached a 13-year high. After the fall in the price of gold in the international bullion market, the price of gold in Pakistan also saw a decline yesterday.
In the interbank market, the dollar depreciated by 65 paisas yesterday, while in the open market, the dollar fell by 50 paisas. Almost all currencies, including the euro, the Saudi riyal, the pound and the UAE dirham, fell against the rupee.
Islamic banking shows 30pc growth in assets
The central bank of the country said Pakistan recorded a 30 percent growth in Islamic banking assets during the 2020 fiscal year. The overall assets and deposits of the Islamic banking industry (IBI) have shown tremendous growth of 30 percent and 27.8 percent, respectively, during CY2020, said the press statement by the State Bank of Pakistan.
This growth in assets and deposits of the Islamic banking industry is encouraging, particularly due to the fact that the industry was also faced with the COVID-19 pandemic challenges during 2020, the report added.
According to its official statement, the assets of the IBI increased to Rs4,269 billion, whereas deposits reached Rs3,389 billion by the end of December 2020 which mark a 17.0 pc composition in total assets while respectively, an 18.3 pc in total deposits recorded by the overall banking industry in this period.
Transactional approach a need of the hour
Economic experts believed that regardless of the testing times due to the COVID-19 pandemic, the national economy is heading in the right path as the government’s extensive steps have helped it move progressively on the adjustment direction in a stabilization process.
Several stabilization steps of the current government are yielding results. Macro stabilization and success in the external sector are evident from the economic condition of the country.
However, the biggest issue for the poor is not remittances or current account deficits, inflation and employment, which PM Imran promised to control in the general polls.
The government is facing a number of economic challenges which need to solve by adopting solid steps and good economic policies to overcome the trade deficit, inflation and debt.
If the government wants to develop the economy of the country, authorities required to take drastic steps from adopting long-term policies, decreasing its expenditure, keep the interest rates low, and slowly decrease the prices of petroleum products and electricity.
There also needs to be better structure and purposeful practice in the policymaking framework, moving away from a gradually, ad hoc and transactional approach.