Current account balance remained in surplus during the first ten months of 2020-21 due to strong growth in remittances and an ongoing pickup in exports
KARACHI: Finance Minister Shaukat Tarin unveiled the Pakistan Economic Survey 2020-21 in Islamabad on Thursday, revealing that the industrial and services sectors had helped the country post GDP growth of 3.94 per cent in the first 9 months of the fiscal year (July to March), significantly higher than the target of 2.1%c.
“The impact of the government’s timely and appropriate measures is visible in the form of a V-shaped economic recovery on the back of broad-based growth across all sectors,” said Economic survey said.
The provisional GDP growth rate for fiscal year 2020-21 is estimated at 3.94 percent, higher than the targeted growth of 2.1 percent, for the outgoing fiscal year. The government is monitoring the country’s situation actively and is taking necessary measures to facilitate agriculture and industry sectors to avoid the downside risk and to further accelerate the economic recovery.
The GDP growth is based on 2.77, 3.57 and 4.43 percent growth in agriculture, industrial and services sector, respectively. In order to uplift the agriculture sector, the National Agriculture Emergency Programme with a cost of Rs 277 billion is already underway.
According to the survey document, the current account balance remained in surplus during the first ten months of 2020-21 due to strong growth in remittances and an ongoing pickup in exports.
Remittances witnessed a remarkable growth as more formal channels were opted due to restrictions imposed on informal means in the wake of COVID-19.
Most importantly, measures undertaken as part of anti-money laundering regulations in accordance with FATF recommendations have also facilitated a shift from informal to formal channels of sending remittances.
Similarly, efforts under the Pakistan Remittances Initiative (PRI) and the gradual re-opening of businesses in major host countries such as the Middle East, UK and the USA also played their part in giving a boost to the remittances. Added with this, timely resumption of economic activities helped the export sector performed relatively better than other emerging economies; both of which led to an improvement in the external sector. It is worth mentioning here that under the IMF programme there are better prospects for the external sector which ensures that the external financing needs will be comfortably met.
On fiscal side, a substantial increase in tax collection and effective management of expenditures helped in containing the fiscal deficit as a percentage of GDP, while the primary balance continues to remain in surplus. The fiscal performance during (July-March) FY2021 shows that the fiscal consolidation policy helped in achieving fiscal discipline, increasing revenues and controlling expenditures. Especially, FBR tax collection has witnessed a double-digit growth during (July-April) FY2021 reflecting growth in economic activities despite the challenge of the third wave of COVID-19.
During FY2021, SBP maintained the policy rate at 7.0 percent. The existing stance of monetary policy remained appropriate to support the economic recovery with inflation expectations well-anchored and maintaining financial stability. It is pertinent to mention that inflation all over the world remained volatile mainly due to supply-side disruptions in commodities due to the COVID-19 pandemic. Rising international prices are putting pressure on domestic prices. Global food prices are at their highest in a decade (FAO).