According to the economic survey of Pakistan, economy of Pakistan rebounded strongly in FY2021 and recorded growth of 3.94 percent which is not only substantially higher than the last 2-year but also surpassed the target (2.1 percent for FY2021). Despite strict fiscal constraints, timely and appropriate strategy measures taken through the present government of Pakistan resulted in a V-Shaped economic recovery. Furthermore, in the annual report titled ‘State of Pakistan’s Economy’ — which reviewed FY2021 — the central bank analyzed that the expansion in economic activity was accompanied through a 10-year low current account balance that contributed to a significant build-up in foreign exchange reserves. The fiscal deficit also edged down despite COVID-pandemic related spending, leading to an improvement in the public debt-to-GDP ratio, unlike the experience of most countries globally. The Average headline CPI inflation declined to 8.9 percent in FY2021 — within the SBP’s forecast range of 7-9 percent. It is stated that the resurgence in domestic demand did not translate into inflationary pressures amidst the presence of some spare capacity in the economy. In Pakistan the inflation remained volatile during the year, due to the impact of the increase in fuel prices and power tariffs. The economic turnaround was facilitated through management of the COVID-19 health pandemic, also a prompt and targeted monetary and fiscal response to counter its impact on economic growth and livelihoods. The SBP’s liquidity support amounted to around 5 percent of GDP by the end of FY2021, featuring a combination of policy rate cuts also various targeted and time-bound measures, like the Temporary Economic Refinance Facility (TERF) for promotion of new investment, Rozgar payroll financing scheme to prevent layoffs, the Refinance Facility to Combat COVID-19 to provide concessional financing to construct hospitals and facilities to fight against COVID, and temporary loan deferments and restructurings to offer temporary liquidity relief to small and big businesses also individual borrowers. Statistics showed that a broad-based recovery in real GDP growth was registered. Led through the favourable supply and demand dynamics also a low base effect from the COVID-led contraction in FY20, large-scale manufacturing recorded a 14.9 percent rise in FY2021. It is also analyzed that although the growth in agriculture was slightly lower than in FY20, the production of wheat, rice and maize rose to historic levels. The improvement in the commodity-producing sectors and a surge in imports led to a sharp recovery in wholesale and trade services in FY2021. The current account deficit reduced substantially amid record-high workers’ remittances and export receipts and contributed to the $5.2 billion raise in the SBP’s foreign exchange reserves during the year. Furthermore, Pakistan also retained access to sizable external financing, with inflows received from the IMF and other multilateral and bilateral creditors; the issuance of Eurobonds after a long hiatus; and deposits and investments from non-resident Pakistanis via the Roshan Digital Accounts.
| World GDP and Trade Volume Growth (%) | ||||
|---|---|---|---|---|
| Details | 2019 | 2020 | 2021 | 2022 |
| World GDP growth | 2.8 | -3.3 | 6.0 | 4.4 |
| United States | 2.2 | -3.5 | 6.4 | 3.5 |
| Euro Area | 1.3 | -6.6 | 4.4 | 3.8 |
| United Kingdom | 1.4 | -9.9 | 5.3 | 5.1 |
| China | 5.8 | 2.3 | 8.4 | 5.6 |
| Middle East and Central Asia | 1.2 | -2.9 | 3.7 | 3.8 |
| World Trade Volume | 0.9 | -8.5 | 8.4 | 6.5 |
| Source: IMF World Economic Outlook, April 2021 | ||||
SBP reported that the recovery in exports was driven by the continued adherence to the market-based exchange rate system; provision of subsidised inputs; lower duties on imported raw materials; and the fast-tracking of GST refunds. During FY2021, the higher exports partially offset a significant rise in import payments, which surged amidst the upswing in economic activity; supply-side issues in wheat, sugar and cotton; and elevated international commodity prices. These pressures became more prominent towards the end of the year, leading to a 3 percent depreciation of the Pakistani rupee against the US dollar during the fourth quarter (July-March),” the central bank reported, noting that the local currency had appreciated 10 percent, mainly due to the accumulated current account surpluses. Statistics showed that Meanwhile, the fiscal deficit reduced to 7.1 percent of GDP, from 8.1 percent in FY20. It is also said that on the revenue side, the Federal Board of Revenue’s tax collection enhanced sharply, in the wake of the economic rebound, a surge in imports, and attempts to streamline tax administration. It is noted that with the containment of the twin deficits and currency appreciation, the public debt-to-GDP ratio declined to 83.5 percent in FY2021. In last I would like to mention here, the economy has fairly recovered from a dip of last year due to COVID-19 situation. The economic recovery cannot be completely attributed to the holdup of economic activities, the government timely and appropriate policies especially fiscal stimulus also helped in containing the pandemic and recovering economic activities. Further, monetary and financial measures by SBP accelerated the speed of recovery.