Economy seen regaining pace in 2021 after Covid-19 shock

KARACHI: Economy is expected to emerge this year from last year's slump and grow as much as 3.49 percent annually, propelled by by a mix of fiscal and monetary stimulus measures as the coronavirus pandemic ebbs, central bank said on Monday

The gross domestic product (GDP) fell by 0.4 percent in the last fiscal year, the first economic contraction since fiscal year 1952. “FY21 (gross domestic product) growth is expected to rise to 3.94 percent, as post-Covid recovery underway since last summer has strengthened,” the State Bank of Pakistan (SBP) said in a tweet.

Earlier, the SBP forecasted the economy to grow 3 percent in the current fiscal year after revised its forecast higher from above 2 percent. “The 9-mth current account is also in surplus for the first time in 17 years and foreign currency reserves at a four year high," the SBP said.

"This rebound was fueled by a well-calibrated policy response.” The SBP, over the weekend also clarified that the provisional estimate for FY2021 growth of 3.94 percent released by the National Accounts Committee (NAC) reflects the strong economic recovery underway since the beginning of this fiscal year, which has been highlighted in its recent monetary policy statements and quarterly reports.

"The SBP had raised its own growth forecast in March on the basis of buoyant economic activity reflected in different high frequency data," it added. “This was done in an appropriately conservative manner while noting upside risks to growth. Data received since then, and discussed in the NAC, suggest these upside risks have materialized. The estimate released was approved unanimously and has the full backing of the SBP.”

The SBP said it provided a targeted economic stimulus of Rs2 trillion or 5 percent of GDP to support the recovery through interest rate cut, principal deferment and loan restructuring, Rozgar payroll finance scheme to prevent layoffs, and concessional finance for investment in industry and health facilities.

The SBP rapidly reduced the policy rate by 625 basis points to give significant interest expense relief for borrowers. That is Rs470 billion or 1.1 percent of GDP. The SBP’s aggressive stimulus measures provided economic support to households and businesses and helped saved millions of jobs during the COVID-19

The SBP introduced new facilities to incentivize investment in industry (TERF) and hospitals and public health. The investment loans under TERF have reached Rs449 billion as of May 23, 2021.

The financial institutions have restructured loans worth Rs254 billion under the loan restructuring programme to facilitate viable borrowers to continue business operations. Banks deferred loans worth Rs657 billion under loan principal deferment programme to ease cash constraints of individuals and business borrowers.

The approved and disbursed amount, under the SBP Rozgar Scheme launched to prevent layoff by financing wages and salaries of employees for six months for all kinds of businesses except for the government entities, have increased to Rs238 billion.

While giving an aggressive economic response to COVID, Pakistan had one of the smallest increases in public debt globally which has supported market sentiment, the bank said. Pakistan recorded 1.7 percent increase in debt as percent of GDP in 2020. Given high public debt, fiscal support was targeted to the most vulnerable, notably through the globally-acclaimed Ehsaas programme. At the same time public debt and deficit were kept under check which has supported market sentiment, investment outlook, and economic recovery, it said.