Pakistan plunging deeper into economic malice

Pakistan’s GDP growth has been provisionally estimated at 0.29%YoY for FY23, as against the revised growth of 6.1%YoY for FY22.

Agricultural sector’s growth is estimated at 1.55% for FY23, as compared to 4.3% in the earlier year, with crop output posting a negative growth of 2.49%YoY, offset by Livestock (3.78%), Forestry (3.93%) and Fisheries (1.44%YoY) growth.

The drop in crop production was largely anticipated in the aftermath of the floods in August 2022 that ravaged close to a third of the country’s land mass. Cotton crop was severely damaged during the period, as a result of which cotton arrivals at ginners remained lackluster, down by 34%YoY in 9MFY23.

Industrial output has been estimated to post negative growth in FY22 as against 6.83%YoY in the earlier year.

Within the Industrial Activities, Mining & Quarrying has posted a drop of 4.4%YoY, whereas growth in Manufacturing, Electricity (-3.91%YoY), Water and Gas supply (-6.03%YoY), and Construction (-5.53%YoY) have been estimated

To note, oil and gas production, as per the PPIS data, has dropped by 5.3% and 3.6%YoY, respectively in 9MFY23.

Moreover, OMC offtakes have dropped by 24%YoY in 10MFY23.

Furthermore, owing to restrictions on opening L/Cs, production activities across the country have been hampered.

For instance, data from PAMA indicates that production of automobiles in the country (excluding two- and three-wheelers) has dropped by 49%YoY in 10MFY23.

With the aforementioned backdrop and the figures furnished, GDP growth is likely to come in lower than the estimated figure, with a real possibility of Pakistan posting negative GDP growth in FY23.

Continuation of the FX crisis and the related import restrictions, along with the possibility of continuing climate-related disasters, is likely to keep GDP growth in check next year.

Heightened inflation expected for 1HFY24 (expected to taper off in 2HFY24) is likely to keep services sector growth in check as well.

With the delays in the IMF program and mounting external financing requirements (US$28 billion), further depreciation of the PKR against the greenback is likely.

 

Is Pakistan at the verge of technical default?

This mornings I was alarmed to listen to three rumours: 1) banks are unable to buy foreign exchange for their clients from the inter-bank market, 2) whatever US dollars are still held by the central bank just can’t be used and 3) most probably the PML-N will do, what it did in nineties ‑ freezing of foreign currency accounts of Pakistanis till the time forex starts flowing into Pakistan.

I had brief chat with some of the senior analysts and the conclusion was, “Pakistan is at the verge of technical default”.

The overwhelming consensus was, “It is not because of any weakness of the economy of the country, but due to the inability of the decision makers to make prudent and timely decisions”.

The consensus was, “If the casual attitude of the policy planners is not changed immediately, they will only hasten the default”.

The first and the worst habit of the incumbent government is that it spends more time on blaming the previous government, but does not take into accounts its own acts.

It talks about austerity, but indulges in extravaganzas.

It even fails in listening to what the International Monetary Fund (IMF) and friendly countries (also willing to support Pakistan) are saying.

The coalition partners were too keen to control the reigns, but neither had the plans to take the country out of the crisis.

Someone was indecent but may be right, “They wanted to take their names out of Exit Control List (ECL) as well get immunity to rule the country”.

They neither have the will nor the spine to make difficult decisions.

Raising POL prices and electricity tariffs are the easiest decisions because all their expenses are borne by the government.

Their thinking is still not synchronized with what the IMF is saying.

They have not only failed in containing the twin deficits (budget deficit and current account deficit) which is also proliferating the third deficit – confidence deficit.