Economic activity expected to rebound in first quarter

ISLAMABAD: Ministry of Finance on Wednesday predicted that economic activity was expected to rebound within the first quarter (July-Sept) period of the ongoing fiscal year on the basis of current macroeconomic fundamentals.

“Looking forward, 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 FY 2021.

This implies that, given current information, economic activity in Q1 of FY2021 would recover at least around the level observed in Q1 of FY2020” Ministry of Finance stated in its report released on Wednesday.

It further hoped that on year on year (YoY) basis, inflation is expected to stabilise 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.

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, the report maintained.

FBR tax collection grew by 4.7 percent to reach Rs290.5 billion in the month of July, FY2021 against Rs277.3 billion in the comparable period of FY2020. The government has announced opening of almost all economic activities, thus an upward trend in FBR tax collection is expected, still the risk prevails, as economic activities will be in full swing with some time lag. On expenditure side, following budget strategy of FY2021, the government will continue to focus on keeping primary balance at the sustainable level. Thus, with continued expenditure management along with corona related expenditure, fiscal deficit is expected to be kept being financed as budgeted.

Exports of goods: 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 2019. Imports of goods: Import 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. Thus, the same holds for the trade balance.

Remittances: The government is making efforts addressing issues related to Pakistani workers working abroad. In July-20, workers’ remittances remained $2.8 billion compared to $2.0 billion in July-19 and $2.5 billion in June-20. It is expected that workers’ remittances will keep its pace and expected to remain within the range of $1.8–2.2 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 easily be financed from financial account. LSM has started to rebound after the damage inflicted by COVID-19 outbreak. The monthly snapshot of manufacturing activity indicated 16.8 percent growth in June FY 2020 (19.1 percent May FY 2020). YoY it decreased by -7.74 percent in June FY 2020 (2.2 percent June FY 2019.

On MoM basis, 9 out of 15 subsectors of LSM have witnessed positive growth in June FY 2020. Textile, having the highest weight in LSM grew by 34 percent in June FY 2020. Other major sectors like Electronics (18.4 percent), Iron &Steel Products (15.9 percent), Automobile (229.5 percent), Non-metallic Mineral Products (58.3 percent) have also picked up the pace in June FY 2020. On a YoY basis, Food, Beverages and Tobacco have also improved by 18.5 percent in June FY 2020 after a five-month consecutive decline. The automobile sector has also started to recover and in July FY 2021, on MOM basis, total car production and sales increased by 64 percent and 38 percent, respectively. Trucks and Buses production increased by 4 percent. Production and sales of Tractors increased by 18 percent and 17 percent, respectively in July FY 2021 on YoY basis.