ISLAMABAD – The ministry of finance has expressed hope that economic recession, following the impact of the COVID-19 pandemic, is coming to an end.
With the start of the new fiscal year, signs of economic recovery have started to unfold as evident from data on macro- variables, the ministry stated in its Monthly Economic Update & Outlook, August 2020. Based on high frequency indicators, summarized in the Monthly Economic Indicator (MEI), economic growth has resumed in last two months, June and July 2020.
Looking forward, the ministry stated that based on current economic, fiscal, monetary and exchange rate policies and on prospects for the international environment, economic activity is expected to rebound strongly within the first quarter of current fiscal year (FY 2021). This implies that, given current information, economic activity in first quarter (July to September) of FY2021 would recover at least around the level observed in same quarter of FY2020.
Likewise, for the trade balance on goods and services, it is expected that it will converge to the level seen in the first three months of the previous fiscal year and would therefore be manageable in terms of its financing. Further, on annual basis, inflation is expected to stabilize in the first quarter of the current fiscal year based on current information and in absence of unexpected shocks or policy measures, at around current levels.
â€œGovernment has handled the pandemic with considerable dexterity which has been acknowledged worldwide. The country has invested in programs like BISP and Ehsaas Kafalat which are amongst South Asiaâ€™s largest social safety net systems. In addition, the government took swift and timely actions on the economic front to provide support to the business and economy during the difficult times,â€ the ministry of finance added.
The government has projected that inflation is expected to remain within a range of 8.4 to 9.7 percent in August 2020. International food prices continued to remain fairly stable. On the other hand, in recent months, international price of oil tends to recover from recent lows and the USD/PKR exchange rate has been rising gradually. Â Among additional factors effecting inflation, the policy interest rate remained unchanged in July. Furthermore, some relief has been given to indirect taxes, not only to industry but also to consumption in the Federal Budget FY 2021. These factors may exert a tempering effect on inflation and inflation expectations.
The ministry of finance hoped that agriculture sector would grow. On the basis of 81.3 percent Urea offtake and 11.5 percent of DAP offtake over same month last year, along with sufficient availability of water and satisfactory situation of seed will have positive impact on cultivation, yield and productivity of important crops as well as on other crops.
In July, exports of goods and services posted an increase of 17.9 percent with respect to June, reflecting the opening of the economies in the main trading partners. It is expected that in August the receipts on exports of goods and services would fluctuate around current levels, implying that they would recover/surpass the level seen in August.
Meanwhile, imports of goods and services increased by 6 percent compared to June, reflecting the restart of domestic economic activities. It is expected that in August, imports will fluctuate at current levels and converge in to the direction of the level observed in August 2019.
The government is making efforts addressing issues related to Pakistani workers working abroad. In July-20, workersâ€™ remittances remained $ 2.8 billion compared to $2.0 billion in July-19 and $2.5 billion in June-20. It is expected that workersâ€™ remittances will keep its pace and expected to remain within the range of $1.8 â€“ 2.2 billion in Aug-20 as well. During August 20, exchange rate remained stable while as of August 20, 2020 SBP Foreign Reserve remained $12.6 billion. Thus, it is expected that Current Account Deficit will be within last year level and with improvement in Foreign Direct Investment and other financial inflows, it can be easily financed from Financial Account.