Federal cabinet grants permission to approach G20 for relief

ISLAMABAD: The federal cabinet has agreed in-principle to grant permission to the Ministry of Finance for applying debt relief from G20 countries, expecting to get debt rescheduling to tune of US$1.8 billion for the period of one year.

One top official of the Finance Division confirmed to The News on Wednesday that the cabinet in-principle agreed for engagement with G20 and “it will be done as and when required.” Meanwhile, the Ministry of Finance has conceded that managing fiscal accounts would be challenging due to economic slowdown under Covid-19 crisis and higher expenditures in health and social sectors.

According to the finance ministry’s report, Pakistan’s real GDP growth projection varies from negative to positive. The IMF estimates negative -1.5 per cent, however, Pakistan Bureau of Statistics (PBS) will come up with the GDP estimates in the national account committee meeting expected to be held in the mid of May.

According to the latest data for July-March, FY2020 for Pakistan’s economy, the external sector continues to improve on account of modest growth in both exports (1.1 per cent) and workers’ remittances (6 per cent) along with significant reduction in imports (16.2 per cent) and increase in FDI (137.3 per cent). The current account deficit is reduced by 73.1 per cent to US$2.8 billion (1.3 per cent of GDP) against US$10.3 billion last year (4.7 per cent of GDP).

In order to reduce the impact of coronavirus outbreak, the government has announced Rs.1.2 trillion relief packages, aiming to provide assistance to vulnerable communities and businesses, including SMEs, construction industry, deferment of utility bills of lower income groups, deferment of principal and interest for business and reduction in fuel prices, etc. Similarly, the SBP has decided to cut policy rate up to 9 per cent, also providing various incentives to manufacturing sector and exporters. Joint efforts of the government and SBP will provide a cushion to the industry in this dwindling situation.

“The fiscal performance till now indicates fiscal consolidation is on the track, however, managing fiscal accounts under Covid-19 crisis would be challenging due to economic slowdown and higher expenditures under health and social sectors,” it stated. Sensitive Price Indicator (SPI), which monitors the price movement of 51 essential items on weekly basis, is showing an increase of 0.1 per cent during the week ending on April 16, 2020.

The economic slump in China, USA, EU and Middle East will affect Pakistan’s exports and remittance inflows. The slowdown will also have a negative impact on tax and non-tax revenues, whereas the government spending will overrun and fiscal balance may be disturbed, having negative implications. Recent decline in oil prices is, however, a positive sign for Pakistan’s economy. Drop in crude oil prices may also reduce the current account deficit and ease out inflationary pressure, the report concluded.