The economic results of last year were essentially disastrous for Pakistan. For individuals and organisations in both Pakistan and the rest of the world, the forecast for 2021 is similarly unclear.
As political noise grows and an ongoing health crisis shapes the horizon, this ambiguity prohibits the political and economic establishment from taking a strong stance about how economic circumstances will unfold in 2021.
The views of Finance Minister Dr Abdul Hafeez Shaikh were requested, but the answers came from the Ministry of Finance (MoF).
It expects a broad-based economic growth in 2021, backed by fast-track CPEC ventures, a rebound in manufacturing activities and an increase in exports, to be seen in 2021. Around the same time, the Ehsaas scheme is expected to grow dramatically by the MoF, an indication that even a broad-based economic rebound will be inadequate to bring the bulk of the people back on their feet. The edited version of the Q&A is below.
Last year was a year that was traditionally tough. How do you predict the next year?
Pakistan has performed well in handling the Covid-19 crisis and the government’s stimulus initiatives have contributed to a revival in economic development. The record Rs1.240 billion stimulus package, the highest in Pakistan’s history, provided 15 million needy households with cash assistance, assisted small and medium-sized companies, private-sector enterprises and major factories to protect jobs and deter bankruptcy. In addition, the historic building package announced by the Prime Minister has resulted in increased investment of Rs300bn in the construction industry, a big boost to the economy and the development of new jobs.
As is already evident from solid growth in the manufacturing and services industries, we conclude that the facts on the ground favour a broad-based economic rebound in 2020-21.
Food protection may be challenged by the move of the farming population toward more lucrative crop options. Is there a plan to ensure that adequate food crops and livestock stock are produced?
Over the last decade, the agricultural sector has stagnated with zero growth, and its share of GDP has declined from 21.4% in 2012-13 to 19% in 2017-18, while the import bill for major agricultural commodities peaked at $4 billion (2017-18). Crop yields are among the lowest in the world and crops are not immune to the threats of pests and temperature.
In July 2019, the government initiated the Prime Minister’s National Agriculture Emergency Program involving 16 Rs309.7bn projects to raise the yields of major crops in order to resolve these issues and improve farm production. The share of federal government spending will be Rs85bn, Rs175bn will be the share of local governments, and Rs50bn will be the share of farmers. In addition, three projects costing Rs220bn based on the watercourse lining and small dams have been undertaken to preserve and improve water efficiency. The government has also allocated Rs23.6 billion for the development of four new markets and the enhancement of facilities in Punjab’s 54 existing agricultural markets.
It is necessary to promote industrialization, but can the government audit the effects of cheap loans, tax cuts, incentives and discounts to the business sector to determine the effect on job growth and income generation?
(The MoF did not comment whether it had any intentions to audit the effects of cheap loans, tax exemptions and other subsidies, but blamed the “reckless policies of previous regimes that led to Pakistan’s de-industrialization through loss of competitiveness.”) Not only did Pakistan’s industry lose its share of global export markets, but most producers were unable to compete at home because of the loss of competitiveness.
Our government is focusing on reversing this trend and has greatly expanded funding for the manufacturing sector, in particular for the export sector, in the form of cheap energy and export incentives.
Such benefits and subsidies are performance-based. The findings are tracked by the related ministries and public offices. So far, we’re inspired by the findings.
Did you see a blessing of disguise in the termination of the IMF policy in February last year when it opened a window to be charitable to companies and proposed an amnesty scheme for construction sector investment?
The IMF is Pakistan’s main development partner and, during the current year, has offered important financial and technical assistance. This involves $1.4bn of funding under the Rapid Financing Instrument (RFI) to Pakistan in April 2020 to support the Covid-19 response and to stabilise the economy.
The $6 billion IMF Expanded Financing Facility (EFF) approved in July 2019 is underway, and with all efficiency expectations and structural targets reached, the first assessment was successful. With government stimulus spending aimed at helping distressed families and assisting industry during the pandemic crisis, post-pandemic realities have shifted.
We collaborate together with the workers of the Fund to (resume) the evaluation process at the earliest. In reaction to the pandemic, the historic building package was launched which seeks to generate new employment openings and provide affordable housing options.
Are you planning to extend the social safety net further by the Ehsaas programme? What about the sustainability thereof?
Pakistan’s greatest success storey in 2020 was the quick action initiated by the Ehsaas initiative by the Prime Minister to protect poor households during the pandemic. The straightforward way in which 15 million households (about 45 percent of the total population) have obtained cash assistance in a limited span of time has been recognised worldwide.
From 4.5m earlier, we plan to permanently expand the Ehsaas cash assistance service to 7m households in 2021.
How much, under the PTI regulation, have the power sector and tax reforms progressed?
There has been considerable improvement, but much more needs to be achieved. The power sector reforms are far-reaching and constitute the most critical reforms implemented in the history of Pakistan. The new Fair Trading Bilateral Contracts Market (CTBCM) implementation strategy would usher in a competitive climate that benefits customers in the power sector. This would turn the current captive (single-buyer) energy market into a multi-buyer, liberal climate. Secondly, a consensus has been reached by the government and IPPs, which would offer benefits to customers.
As for tax reforms, we have reduced the broad tax exemptions on their respective domestic sales to the five zero-rated industries. We estimate that these sectors’ domestic sales are over Rs1 trillion and getting them into the tax net would raise tax collections substantially.
In 2021, how do you see CPEC faring?
With an emphasis on developing our trading platform, CPEC is key to our growth strategy. With tax benefits for foreign and domestic investors, we are setting up nine Special Economic Zones (SEZs) across Pakistan under the CPEC. In the first phase, developments in the CPEC have concentrated on crucial bottlenecks in infrastructure (energy, rail, ports and road infrastructure) to resolve these shortages and improve trade competitiveness. In the second step, we will concentrate more on investments in manufacturing and agriculture to improve production and increase exports.
Under CPEC, we have quick-tracked ventures and are optimistic that 2021 will be the year in which the results of these developments will encourage a stronger recovery.
Owing to a protracted economic recession, foreign trade has been stressed, posing a problem for Pakistan. How do you intend on benefiting from regional trade?
The world economy has entered a recession and the main export markets have plummeted. Exports from Pakistan, however, have recovered to pre-Covid-19 levels and we expect that our exporters will be able to grab a greater market share in main export markets as a result of government incentives.
Under previous administrations, the export sector has suffered from zero increase in exports over the last five years. Instead of focusing on costly foreign debt to cover huge trade deficits, our government has made it a priority to help the export sector and raise foreign exchange earnings. In addition to export refinancing programmes, the government has provided incentives to the export sector by offering subsidised power and gas at regionally competitive rates.