KARACHI: The State Bank of Pakistan (SBP) on Tuesday said that the revised GDP growth target of three per cent was unachievable even after ignoring the impact of pandemic on the economy as the agriculture sector and large-scale manufacturing failed to compensate for subdued domestic market activity.

The projections are likely to be revised downward further as the optimism from stabilisation is now subject to risks arising from the global and domestic spread of Covid-19, said the central bank in its Second Quarterly Report on the State of Pakistan’s Economy.

The report mostly deals with the pre-coronavirus economic performance but it also covered the grave and disastrous impact of the pandemic on the economy. It notes that the situation is extremely fluid and highly uncertain, the economic outlook remains subdued compared to the pre-outbreak estimates.

“The global and domestic spread of Covid-19 has brought an exceptional set of challenges for the country,” it said, adding that the spillovers from the global economy and containment measures across the country are bound to weaken economic activity, consumer demand and adversely impact supply.

Pakistan’s economy had clearly moved out of the crisis-management mode before the spread of coronavirus, said the report. “The current account numbers were getting better every month, the foreign exchange reserves were shoring up steadily. In addition, headline inflation was expected to revert to the medium-term target of 5-7pc over the next 24 months,” it said.

The GDP growth projection was revised downward to 3pc but it is likely to be revised further downward as things are going from bad to worse. The World Bank and International Monetary Fund also revised growth estimates for Pakistan to 1.3pc or even lower for the current fiscal year.

While discussing the first half of the fiscal year, the report said the overall revenue target was missed, highlighting the scope for greater efforts to broaden the tax base and increase documentation in the economy.

The report further highlighted the issues pertaining to the agriculture sector which appears less resilient to challenges like constrained water availability and climate change. The cotton crop, in particular, was hit by unfavorable weather, pest attacks and low water availability.

Though the prospects for wheat crop and livestock are encouraging, the decline in cotton production is likely to undermine the agriculture sector’s performance in FY20, said the SBP report.

Regarding the fiscal sector, the report said the primary budget recorded a surplus, while the fiscal deficit was contained during 1HFY20 compared to the same period last year.

“This was due to a significant growth in revenues despite a slowdown in the economy and the compression in imports. The reversal of earlier tax concessions and implementation of new levies helped increase the revenue collection,” said the report.

The spillover from global economic slowdown may also be significant. On the positive side, as a net oil importer, Pakistan would benefit from the substantial decline in global oil prices. Apart from contributing to the SBP’s disinflation efforts, this will further reduce the import bill and the current account deficit.

On the negative side, the outbreak in Europe and North America and the ensuing lockdowns may have an adverse impact on exports, said the report. Domestic exporters have already warned of cancellation of orders as retail sales in destination markets weaken and port and shipping activities are restricted.

Remittances from major destinations may decline temporarily in the coming months, the report added.

According the SBP financial markets too have come under severe pressure. The equity market was the hardest hit, as domestic investors grew wary of the pandemic’s trajectory.

Published in Dawn, April 15th, 2020