Economic Survey

Economic Survey 2020/21: GDP growth target surpassed despite strict fiscal constraints

Finance

ISLAMABAD: Pakistan has surpassed GDP growth target of 2.1 percent and achieved 3.94 percent for fiscal year 2020/2021 despite strict fiscal constraints in the wake of COVID-19.

The Economic Survey of Pakistan released on Thursday stated that the economy of Pakistan rebounded strongly in FY2021 and posted growth of 3.94 percent which is not only substantially higher than the previous two years (-0.47 and 2.08 percent in FY2020 and FY2019 respectively) but also surpassed the target (2.1 percent for FY2021). Despite strict fiscal constraints, timely and appropriate policy measures taken by the government resulted in a V-Shaped economic recovery.

The beginning of FY2021 was better in terms of containment of pandemic and economic recovery, however the second wave in late October 2020 and the third wave in March 2021 made government efforts more challenging for containing the pandemic and keeping the economic activities to continue. Regardless of fiscal constraints, relief provision to vulnerable segments and growth support was the government’s utmost priority.

According to the World Bank report on “Social Protection and Jobs Responses to COVID-19: A Real-Time Review of Country Measures” published on May 14, 2021, Pakistan was ranked Fourth in terms of a number of people covered while Third in terms of the percentage of population covered.

Pakistan’s economy is now on course towards strong and sustained recovery. The pandemic resulted in lockdown and depressed demand. Adequate government policies were implemented to keep economy moving. Utilization of unused industrial capacities during the pandemic also helped in economic recovery. On the basis of a rebound in almost all sectors, for FY2021, the provisional GDP growth rate is estimated at 3.9 percent on account of 2.8 percent growth in Agriculture, 3.6 percent in the Industrial sector and 4.4 percent growth in the Services sector. Moreover, GDP at current market prices stood at Rs 47,709 billion, showing a growth of 14.8 percent during FY2021 over last year (Rs 41,556 billion). While in the dollar term, it remained $ 299 billion which is higher than its value recorded last year ($ 263 billion).

Private Consumption has a significantly large share in GDP. This large share implies that Pakistan’s economy is a consumption-driven economy. Better consumer confidence can influence domestic production by increasing demand for durable. Growth in private consumption remained 17 percent in FY2021 as compared to 4 percent last year. On the other hand, growth in Public Consumption remained 11.4 percent, lower than 19.3 percent recorded last year, mainly due to lower growth in interest payments and squeezing of unnecessary expenditures.

Gross Fixed Capital Formation (GFCF) posted a growth of 13.8 percent in FY2021 and remained 13.6 percent of GDP. Private and public including the General Government being two major components of GFCF posted a growth of 6.6 percent and 38.1 percent, respectively.

In aggregate demand, historically contribution of Net Exports usually remained negative. For FY2021, in National Accounts, Exports of Goods and Services posted a growth of 13.6 percent while Imports of Goods and Services posted growth of 20.1 percent. However, for current year, capital goods and raw materials were the main imports which in turn helped in the growth of exports as well as domestic economic recovery.

FY2019 was an era of stabilization, while FY2020 was not only humanitarian crisis but economy also suffered contraction. Economic growth remained 3.94 percent in FY2021 posting quicker significant economic recovery which can be attributed to three factors. (i) The government made better management in controlling the pandemic which kept businesses going on and confidence high in FY2021. (ii) Fiscal Stimulus of Rs 1.24 trillion along with monetary support given in the pandemic. (iii) Due to quicker vaccination which supported economic recovery earlier than expected.

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