How will Pak economy fare in 2016-17 as remittances, exports fall
With negative indicators emerging, how will the economy fare at the close of current financial year 2016-17?
This is the big question mark, as the country is already busy fighting on several fronts including continued slowdown of the business and economy, growing political dissent, rising food prices at home and skirmishing with neighbours.
The three key indicators, which are being projected as source of a further deterioration in the illhealth of the economy include a reduction in remittances, growing foreign and domestic debt which is due for repayment in the next 18to-24 months, and the worsening stagnation in exports.
The home remittances sent by Pakistanis working abroad were projected to rise 10 per cent to $21.9054 billion in current 201617, but the actual amount received during the July-September 2016 quarter puts a question mark on this goal. Instead of rising, remittances fell 5.89 per cent to $4.698 billion in first quarter of 2016-17 compared to $4.966 billion in the same quarter last year, according to the central bank data. At this rate, the remittances inflow for the whole of 2016-17 can reach $18.792 billion, far lower than the actual receipt of $19.914 in 2015-16. It was $18.772 billion in 2014-15.
The officially projected of rise 10 per cent over and above the 201516 amount of $19.9144 billion was considered possible to achieve because friendly countries were expected to cooperate with Pakistan and help its workers to retain their jobs in UAE, Saudi Arabia, Middle East, US and UK. Overall, the present job deployment has remained intact, but there has been displacement and reduction of around 9,000-10,000 jobs only in Saudi Arabia on the back of stoppage of work on certain projects being hit by the crash in oil and commodity prices.
The State Bank of Pakistan said slow inflows of foreign currency were witnessed from Saudi Arabia, UAE, US and UK during 2016-17 first quarter. Forex analysts said migrant cash inflows are expected to weaken more in the coming months as the Middle East economic slowdown hits Pakistani workers deployed there.
“Going forward, we expect the remittances mostly from the Middle East countries to remain sluggish, which means that Pakistan’s current account deficit is likely to widen further,” an analyst said.
“Low oil prices and recently taken economic reforms in the Middle East are causing a slowdown in the remittances inflow. It may add to the Pakistan’s troubles, and exert pressures on balance of payments,” he said, adding that $1 billion shortfall in remittances is expected only from Saudi Arabia during the current fiscal year of 2016-17.
As the government in Islamabad goes on increasing indirect taxes, mainly hitting the middle, the lower and the poor classes, its budgetary deficit goes on widening. In order to fill this gap, the government has been taking the easy root to borrow heavily from the commercial banks and the State Bank of Pakistan, breaking the law that limits such borrowing. The government’s borrowing spree leaves very little credit for the private sector to borrow. It leads to straining industrial and business growth and output. The government is profiting in borrowing heavily as the commercial banks, under SBP-led cheap money policy has brought down the interest rate to a 42-low of 5.75 per cent.
The State Bank of Pakistan has just issued an analysis of the government borrowing. It said the government debt has risen to Rs19.5 trillion — a historic high. The government borrowing rose 11.24 per cent year-on-year to Rs19.5 trillion at the end of August from Rs17.5 trillion. “The debt payable by the government has been piling up for the last three years. It borrows heavily from the domestic and external sources to maintain growth and to narrow fiscal gap. This high level of external debt has already broken the limit set under the Fiscal Responsibility and Debt Limitation Act.”
The government borrowing from foreign sources amounted to Rs5.4 trillion in August 2016 while the foreign debt reached at Rs4.8 trillion. “The massive borrowing from external sources can significantly affect the already widening balance of payments gap, as many repayments are due over the next 18 to 24 months,” an analyst said.
Pakistan’s forex reserves over this weekend were $23.492 billion, a large part of which is expensive foreign debt to repay. Of this total, SBP holds $18.41 billion and the commercial banks keep $5.081 billion. Another worrying thought is that the exports, which declined from $25.1 billion in 2012-13 to $20.8 billion in 2015-16, don’t seem to be moving up. In July this year, the exports were down 6.86 per cent to $1.479 billion as compared to $1.588 billion in July 2015, according to Khurrum Dastgir, Minister for Commerce.
“International financial crises, crash of oil and commodity prices, and lower foreign demand are the factors keeping our exports low. I hope the crisis goes away soon,” Dastgir said. That’s the picture of the economy this week.