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CWA # 645, 10 January 2022

Pakistan Reader
Pakistan’s economy in 2021: Major highlights

  Ankit Singh

Despite suffering from structural problems there were moments of cheer


Three good things
The year 2021 saw technology-enabled new startups. Around USD 330 million were raised in series of rounds A and B. The startup ecosystem was most disruptive and innovative in the space of e-commerce, health, logistics and finance technology. Even the government has launched the Ehsaas program which is a prequel to the emerging field of micro-finance in Pakistan. Famous startups like Airlift logistics, ‘Bazaar’ and ‘Tazaah’ Technologies were instrumental in bringing the common man and digital technologies to a common platform. 

Roshan digital account (RDA) flows remained robust and provided critical support to the current account deficit. Around USD 3.5 billion have been received in the last 14 months. The investment and deposit were allocated to different assets helping the government to tackle the issue of volatile foreign exchange reserves. The scheme for overseas Pakistani has accumulated around USD 29.4 billion and is expected to reach around USD 31.8 billion by the end of the current financial year in June 2022. The most lucrative aspect of the RDA is the Naya Pakistan Saving Certificate which offers returns on investment of 5-7 per cent per annum in foreign currencies. The domestic middle-class erosion in Pakistan is supported by a new pillar of non-resident Pakistanis who enjoy the chance to divest the money invested anytime, hence the escape and risks are limited to non-resident Pakistanis who were kept in a positive spirit by patriotic appeals from the PM himself. 

Large scale manufacturing was another domain that rebounded after the slump due to the pandemic. Partially motivated to control trade deficit, in which imports exceed the export, the government promoted indigenous manufacturing in the domain of automobile, construction, textile, food, chemicals, non-metallic mineral products and pharmaceutical sectors. Except for the periodical slump in the month of October, the overall year was expansionary in large scale manufacturing. The LSM at 9.73 per cent of GDP dominates the overall manufacturing sector, accounting for 76.1 per centof the sectoral share. It is followed by Small Scale Manufacturing which accounts for 2.12 per cent of GDP and 16.6 per cent sectoral shares.

Overall, Pakistan outpaced its targeted economic growth of 2.1 per cent and the estimated growth now stands at 3.94 per cent helping the economic recovery take a V shape.

Three unfortunate things
The inflation averaged at 8.8 per cent for the financial year 2021 (July-May) and it has gotten worse reaching an all-time high of 11.5 per cent in the month of November 2021. The issue this year stemmed from the borrowing and lending at cheap/free rates to small and medium enterprises, poor farmers with no collateral required with limited revenue space. The net domestic debt has risen to USD 162 billion by this year. Largely the microeconomic factors were pushed by favourable understanding with the International Monetary Fund (IMF) for the continuation of the latest extended fund facility worth USD 6 billion, IMF conditions have led the government to reduce subsidies and expand tax base which is not helping the sentiments of the market in the short term. 

IMF became the neo-imperial lord in Pakistan, the sovereignty of the State Bank of Pakistan has been the latest offering by Pakistan to IMF for maintaining a favourable stance on Pakistan as that opens up the flow of money from other multilateral institutions like ADB, World Bank etc. In addition, the IMF has demanded a target on revenue collection and expects the government to expand the tax base by including new sectors and more urban spaces. The decision to increase valuation rates and recent drive to reclaim occupied public land in Pakistan is also inspired by the discussion with IMF. The energy sector has also been expected by IMF to regulate the circular debt by increasing the price per unit, in recent months there has been a gradual but substantial hike in base power tariff of electricity per unit by reducing the subsidies of around PKR 7 per unit. In its Circular Debt Managing Plan (CDPM), shared with the IMF, World Bank and ADB, average losses of Discos will be reduced by 0.5 per cent each year from 16.32 per cent to 15.70 per cent by 2022-23 whereas recovery will also be improved to 95.98 per cent by 2022-23 which are both uphill tasks. The historic low of PKR against USD was also enabled was another issue which culminated due to the issue of surging trade deficit, rising inflation and negative interest rates when the government ditched the harsh conditions of previous IMF conditions under EFF and instead went for consumption cravings in the May month of this year. 

The gas crises of the winter season have severely impacted the common man living in even far-flung areas from Chaman to Murree. According to Dr Manzoor Ahmad in his opinion in The Express Tribune, “When the global prices of LNG plunged in early 2020, the government had an offer to buy all its requirements for the next three years at $4 per mmbtu, but it let the offer lapse. With the global prices rising sharply, in November 2021, it was forced to buy spot cargoes at over USD 30 per mmbtu.” Therefore, the price of LNG went surging and the government could not afford to buy enough for winters and the CNG supply in the country was hit badly. The refineries were forced to shut down their operations as well as the government imported furnace oil because of which refineries could offload the furnace oil produced in the process. The year 2021 was a year of translucent decisions in terms of economy, Imran Khan who swore never to go to IMF had to resort to the rescue of IMF by August and paid a dear price in terms of the financial burden on masses of the country. 

On a lighter note
Shaukat Bikhari, who has been begging in Multan is said to have earned PKR 1000 per day was finally served notice by the Federal Bureau of Revenue (FBR) after finding out that his children were studying in the city’s elite schools and he had insured his children with life insurance of PKR 10 million. FBR has served a notice to him and demanded an explanation for his source of income.

Ali Ahmed, “Roshan Digital Account: Inflows climb above $2.9bn in November this year,” Business Recorder, 9 December 2021
Startup space 2021,” Business Recorder, 28 December 2021
Afreen Mirza and Khawaja Burhan Uddin, “Startup investment grows by leaps and bounds,” Geo TV, 29 December 2021
Mubarak Zeb Khan, “LSM contracts 1.19pc in October,” Dawn, 17 December 2021
Shahbaz Rana, “Inflation to stay in double digits in Dec,” The Express Tribune, 28 December 2021
Mushtaq Ghumman, “Govt eyes further Rs2/unit hike in base power tariff,” Business Recorder, 23 November 2021
Mohammad Ishaq Dar, “The New SBP Bill: When Central Bank Autonomy Goes So Far That It Challenges State Sovereignty,” The Friday Times, 15 November 2021
Dr Manzoor Ahmed, “Reviewing economy in 2021,” The Express Tribune, 27 December 2021
FBR serves notice to beggar,” Business Recorder, 22 October 2021


*Note: The note was first published in

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