Pakistan’s economy again in need of life support
Pakistan has a promising development potential and an increasing youth population. This country has a huge pool of young people and a need for skilled and unskilled labour. Since the COVID-19 outbreak started, the Government has focused on managing the infections and implementing various measures to support the economy. As the fourth wave of COVID-19 approached, the government implemented various micro-lockdowns to limit the spread of the virus. While the number of people getting vaccinated has been increasing, the rate at which they are being fully vaccinated has remained low.
The 39-month loan facility of the International Monetary Fund (IMF) is expected to be suspended in Q2 of FY22. The program's main objective is to support the government's efforts to strengthen long-term growth. Due to the recovery in domestic demand and low base effects, real gross domestic product (GDP) is expected to have rebounded to 3.5 percent during the current fiscal year from the 0.5 percent contraction in the previous year. The robust performance of the Pakistan’s economy, which was supported by the influx of official remittances and private consumption, is expected to continue during the current fiscal.
Government consumption is estimated to have risen at a slower pace in FY21 than in the previous year. Net exports are also estimated to have contracted. On the production side, the uptick in industrial activity is expected to have been supported by robust manufacturing. The services sector, which accounts for 60 percent of the economy, is also expected to have expanded, as the generalized lockdown measures were lifted.
Despite the moderation in inflation, it remained elevated due to high food prices. This is likely to have a disproportionately impact on households with low income. The current account deficit narrowed to 0.6 percent of gross domestic product in Q2FY21 from 1.7 percent in the previous year. The rise in portfolio inflows was mainly due to the issuance of Eurobonds. The balance of payments deficit was 1.9 percent of the GDP in FY21. The official foreign exchange reserves grew to a record high of US$18.7 billion. In FY21, the government's fiscal deficit narrowed to a lower-than-expected 7.2 percent of gross domestic product, as robust revenue growth supported robust spending. Public debt, excluding guaranteed debt, also ticked down to 90.7 percent at end-June. The recovery in the services and industry sectors has led to a decline in poverty incidence, which is expected to have moderated to 4.8 percent in FY21, from 5.3 percent in the previous year. This change is not significant, as downside risks remain.
The government's focus on mitigating external pressures is expected to trigger a return to fiscal tightening in Q2 of the current year. This is in line with the central bank's policy rate hike cycle, which is expected to end in September 2021. Consumer inflation is expected to increase to 3.5 percent in FY22 due to higher energy and commodity prices and moderating in Q3 as the impact of the policy measures taken by the government dissipates. The current account deficit is also expected to widen to 2.5 percent in Financial Year 23 as the rise in oil prices pushes up imports. Despite efforts to reduce the deficit, it is expected to remain high at around 7 percent of GDP in Financial Year 22. The implementation of key reforms, such as the General Sales Tax, will help narrow the deficit over time. The main risks include the delayed implementation of the IMF-EFF program and the strains related to COVID-19, which could trigger widespread lockdowns. These risks could also delay key structural reforms.
The Country Strategy Partnership(CSP) for Pakistan aims to help the country reach its goals for shared prosperity and poverty reduction. The Pakistan team is currently engaged in the preparation of the Country Partnership Framework for the next fiscal year. This year, they have also released a systematic country diagnostic.
CSP focuses on the World Bank's support for the energy sector reforms is helping improve the efficiency and reliability of the supply. These measures help lower electricity prices, boost transmission, and improve governance. Supporting private sector development is an integral part of Pakistan's development strategy. This framework supports the country's efforts to improve its investment climate and boost productivity. Supporting the vulnerable and the underserved: This program supports the financial inclusion of women and youth, as well as micro, small, and medium enterprises. Supporting faster improvements in service delivery. The program focuses on three themes: women’s empowerment, climate change resilience, and regional connectivity. The portfolio is supporting reforms that aim to strengthen institutions and human development. This includes the establishment of regional centers for education, training, and skills development.
Due to the worsening financial situation of Pakistan, China has declined to renegotiate its debts. It has requested the country to forgive its debts. The total debt burden of the IPPs, which are mainly built on take-or-pay contracts, is over USD 19 billion. It is reported that China has refused to renegotiate the terms of the power purchase agreements with Pakistan. The banks did not agree to renegotiate the terms of the agreement, the Chinese government said in a statement. Nauman Wazir, who is the Senator of the Pakistan Tehrik-e-Insaaf, said that the electricity tariff was on the high side when the private sector was allowed to generate power. The committee's findings revealed that the IPPs had submitted erroneous statements regarding their financial assets and capital.
According to a report by the News International, the country's government owes domestic creditors about USD 158.9 billion, which includes USD 15.1 billion to public sector enterprises. With the combination of safe deposits and foreign commercial loans, Pakistan received over USD 4 billion inflows in the past year.
According to data, the government of Pakistan received over USD 7.208 billion in external financing during the fiscal year 2020-21. The total disbursement from multilateral development partners during the first half of the current fiscal year was USD 3.098 billion, which is a healthy increase of USD 383 million or 11.6 per cent over the budgetary allocation of this year. The country's development partners are increasingly confident about the government's ability to implement its development policies and programs. The country's increased level of external inflows is indicative of the confidence of its development partners in the government's policies and actions.
The nutritional status of women and children has improved. However, there are still large disparities in terms of stunting rates among children under 5 years old. The number of deaths due to maternal and child health indicators has improved but remains significant. The Maternal Mortality Rate (MMR) has decreased from around 276/100,000 live births in 2007 to around 186/100,000 live births in 2019, which is a significant improvement. Over the past five years, the number of children who were fully immunized has increased significantly. In 2018, the coverage rate for these children has increased to 66 per cent. One of the most critical factors that has remained stagnant over the last couple of years is family planning. The total fertility rate has remained relatively unchanged from 2013 to 2018. The mCPR has also declined from 27 per cent to 25 per cent in 2018.
The current pandemic has presented various challenges in terms of disrupting the delivery of essential health services. As a result, many services were suspended. Projects related to COVID 19 are also underway. The project aims to ensure that all public schools in the country have the necessary supplies to reopen after an outbreak. It is also developing a comprehensive health awareness campaign that will help raise the school's student population. Through this program, MoFEPT has been able to reach out to over 100,000 children in Pakistan through radio and teleschool content. ASPIRE is a five-year program designed to improve the performance of schools and education in the Philippines. It aims to enhance the teaching and learning experiences of at-risk students and teachers. Advance against year 1 goals have been made available to the MoFEPT for its program results. This will allow provinces to implement targeted activities and services related to year 1 results. Data and Research in Education is a project supported by the US$ 10 million ASPIRE program. It aims to improve the quality and quantity of data collected in education.
In 2016, the Bank prepared and delivered the IDA-funded Sindh Resiliency Project to address the province's flood and drought risks. The project included various activities designed to strengthen the management of natural disasters. The Bank has successfully delivered the Pakistan Climate Services Project, which aims to improve the reliability and resilience of the country's weather forecasts. The project is expected to contribute to the management of the country's forests. As part of its efforts to improve the management of climate risks, the Bank is engaged with various governments to improve their understanding of the green transition of the economy. In 2009, a violent confrontation between the Taliban and the authorities in Khyber Pakhtunkhwa led to the displacement of millions of people. It is regarded as one of the worst security crises to hit the country. The multi-donor trust fund was set up in 2010 to support the recovery and reconstruction of Pakistan following the devastating impact of the crisis. Its goal is to improve the living conditions of the people affected by the disaster and reduce the potential for escalation or revival.
The Bank supports the establishment of higher education institutions in Pakistan that are focused on improving the quality of education and teaching. The project has been successful in introducing various reforms in the higher education sector. One of these is the establishment of a new undergraduate education policy which allowed for the transition of bachelor’s degree programs to associate degrees. The other key reforms included the establishment of a competitive research environment and the establishment of capacity building programs for faculty. Improvement in Primary Education: The implementation of the PESP-III program has greatly improved the quality of education in Punjab.
Over the past couple of years, the participation rate in schools has increased significantly. Through the partnership program, the province has been able to enroll over 2.6 million children in kindergarten through 8th grade. At the other end, it is also working to improve the early learning curriculum by developing 2 years of early childhood education. This is achieved by implementing new quality standards and monitoring the classrooms using smartphone apps. The quality of education in the province is also improving. However, despite this, there are still some areas where students can improve their basic math and Urdu skills. In 2018, 48% of students were able to correctly answer the same question that they were asked 15 years ago. The quality of education has also improved between public and private schools. The province's second-generation reform program aims to improve learning outcomes. However, since 2016, it has been difficult to hire new teachers. Aside from improving teaching practices, the province also wants to support existing teachers by giving them more support. This includes the use of technology, such as the World Bank’s Teach tool.
Conclusion:
The challenges posed by the COVID-19 crisis have been front and center in the country. The World Bank has supported the government's efforts to develop effective messages on healthy behaviors. The government of Punjab recognized the importance of building human capital in its strategy to improve quality of employment. Through the implementation of the Skills Development Project, it was able to improve the skills training system and increase the access to relevant training programs. The GoS has approved a five-year project for the improvement of education in Sindh. Dubbed as SELECT, the project aims to improve the quality of education in the province, and it will benefit over 5 million students. The project was carried out in partnership with the GoS to improve the governance and accountability of the education sector in the province. It provided access and retention to over 1.8 million students in selected schools. It also trained and appointed an additional 18,000 teachers. The project also pioneered the establishment of the Sindh School Monitoring System, which is a monthly monitoring system for schools. It is also used to identify and monitor teachers. The system is also used to make informed decisions regarding the quality of education. The government of Balouchistan received over $34 million from the Global Partnership for Education and the European Union to improve education in the province. The funds were used to improve the infrastructure of over a thousand schools across the province. As a result, over 100,000 students have been enrolled in the project's schools. Over 5,000 community members have been trained to support the monitoring of school construction and ensure the presence of teachers in schools. The Real-Time Monitoring project helped the Department of Education re-open more than 14,000 public schools. The project, which is managed by the World Bank, aims to improve the availability, quality, and utilization of primary healthcare and education services in four districts of Khyber Pakhtunkwa.
The primary goal of the project is to improve the quality and availability of education in selected districts for refugee and other children. The second component will focus on strengthening the community engagement and redress mechanisms in the education sector. Being one of the most vulnerable countries in the world due to climate change, Pakistan has suffered chronic strain from the effects of natural disasters. In response to these threats, the Bank has been supporting the government in developing a risk management framework. The Bank also built the capacity of the Provincial Disaster Authority of Balouchistan. These two initiatives were part of the Bank's efforts to improve disaster and climate resilience in Pakistan. Through the project, it has helped restore over 200 kilometers of flood-prone infrastructure and strengthen government's capacity to manage disasters.
However, Pakistan’s policies and plans need resuscitation given the fact that foreign exchange is low and debt payments schedule is getting deferred.
Pic Courtsey- Abuzar Xheikh at unsplash.com
(The views expressed are those of the author and do not represent views of CESCUBE.)
