ISLAMABAD-The ministry of finance on Tuesday has noted that fears and risk factors are appearing due to the possible second wave of COVID-19 after economic recovery was seen in first quarter (July to Sep) of the current fiscal year (FY2021). 

“Economic recovery has been observed from the start of the new fiscal year. Most importantly the decrease in number of coronavirus cases and the resumption of economic activities have contributed in dampening the negative impact of health crisis on the economy. Economic recovery was seen in Q1 FY2021 and it is expected that this trend will continue but fears and risk factors are appearing due to the possible second wave of COVID,” the ministry of finance said in its monthly Economic Update and Outlook October 2020.

The ministry of finance noted that economic growth is showing persistent recovery in the first quarter FY2021. In absence of any adverse future shocks, the economy is on its way not only to rebound from the pandemic related crises, but also to record a reasonable growth rate for the full fiscal year. The ministry has termed inflation as one of the main challenges. However, it added that the government is taking all possible measures to control it. Together with measures that ensure sufficient supply of goods, especially food related production, it is expected that inflation will remain under control whereas policy measures will contribute to better functioning markets. Most importantly, although domestic economic activity is expected to recover, still the risk of pandemic attack persists if the SoPs are not fully followed. Thus, Pakistan’s near-term economic prospects are promising subject to reducing uncertainty and restoring business confidence. 

The continuation of fiscal consolidation efforts has paid off in terms of reducing fiscal deficit to 0.9 per cent during the first two months (July to August) of FY2021 against 1.2 per cent last year. Similarly, the primary balance has been kept in surplus. Higher collection under non-tax revenues provided significant support to contain the fiscal deficit on lower side, while FBR tax collection surpassed its target set for Q1, FY2021. Therefore, fiscal deficit was contained within the target set for Q1, FY2021. Keeping in view the encouraging growth in FBR tax revenue collection during the first quarter of FY2021, and significant rise in non-tax revenues, it is expected that both will maintain its pace in the second quarter as well. Thus, it is expected that Fiscal deficit will remain as per targeted for Q2 FY2021 as well, however, the risk of high public spending due to COVID-19 may build pressure on expenditure in Q2 FY2021. 

In the first quarter of the current fiscal year, both exports and imports have been recorded under their respective levels in the corresponding quarter of the previous fiscal year. Climatologically circumstances may have played a role in the observed export and import activity. In October, following the rebound in economic growth in Pakistan, imports may re-join their level recorded last fiscal year. On the other hand, it may be expected that exports will still lag somewhat since economic activity in most of the trading partners has not yet fully recovered. Exports of goods and services in October may come in at around $ 2.7 billion while imports may reach around $ 4.3 billion. As a consequence, the deficit in goods and services may remain roughly stable when compared to September 2020. In the first quarter of FY2021, remittances in USD were 31 per cent higher than in the corresponding quarter of FY 2020. It is expected that the pattern will continue in October as well due to the policy measures that have positively affected the channels of remittances transfers. Further, remittances inflows are expected to remain higher than the trade deficit in goods and services. 

According to the report, torrential rains during August 2020 have damaged cotton crop. Thus, its preliminary estimates are showing a decline of 6.9 per cent against last year’s production level. However, in recent data given by FCA in its meeting on 22nd October, 2020, there is significant improvement in the production of rice and sugarcane. Rice production is showing an increase of 10.4 per cent, while that of sugarcane posted an increase of 14 per cent over production in last year. There is slight decline of 0.3 per cent in Maize production. Therefore, prospects for crop sector growth are encouraging. Similarly, livestock will benefit from green pasture and is expected to post healthy growth. Thus, Agriculture sector is expected to achieve its growth target of 2.8 per cent quite easily.

In September 2020, Current Account remained in surplus ($73 million) for third consecutive month, it was last happened in 2004. Thus, Current Account posted a surplus of $792 million (1.2 per cent of GDP) during Q1 FY2021 against a deficit of $1492 million last year (2.3 per cent of GDP). On MOM basis, exports increased by 29.2 per cent to $1.95 billion during September 2020 as compared with $1.5 billion in August 2020. On YoY basis, exports increased by 3.8 per cent to $1.95 billion during September 2020 as compared with $1.879 billion in September 2019 while Exports during Q1 FY2021 decreased by 10.5 per cent to $5.358 billion as against $5.985 billion last year.