THE economy’s resilience in a deepening crisis has been impaired as demonstrated by its worst performance in 68 years, posting negative growth of 0.38 per cent in 2020-21, according to provisional figures released by the Pakistan Economic Survey 2019-20.

Amidst the overall dismal performance of industrial and services sectors, agriculture and small industries both largely in the informal sector posted positive growth. The contribution of broad segments of the economy to the GDP was as follows: industry -0.52, commodity-producing sectors -0.02, services -0.36 and agriculture 0.5pc percentage point. Though hit by the lockdown, the growth of small industries was recorded at 2.1pc.

The Rs1.24 trillion stimulus and relief package provided by the cash-strapped government and central bank’s efforts to shore up the economy proved inadequate in the face of a severe and unprecedented jolt to an underperforming economy while the government was focused on controversial adjustment policies to achieve much needed macroeconomic stability.

Prime minister’s advisor on Finance Dr Abdul Hafeez Shaikh estimates that Covid-19 has inflicted a loss of Rs3tr on the economy with GDP taking a hit of 3-3.5pc. The future course the economy takes is uncertain depending on how long the government takes to get rid of the virus and its adverse fallout on economic activities. While seeing a ‘V shape recovery’, the Economic Survey says: “ a demand-driven recession can be expec­ted if there is a massive fall in spending or there is a persistent drop in production.”

Amidst the overall dismal performance of industrial and services sectors, agriculture and small industries both largely in the informal sector posted positive growth

In the nine months of 2020-21 compared with the same period of last year, private sector borrowings recorded a steep decline. The credit offtake for working capital fell from Rs369 billion to Rs28.8bn and for fixed investment from Rs83.1bn to negative Rs5.2bn. It demonstrates decelerating economic activity in the private sector.

The worst affected by the lockdown was the services sector which contracted sharply despite positive growth in some sub-sectors like health services, online digital content and product delivery. Over time it has emerged as the fastest-growing sector and the largest contributor to GDP. It has however managed to retain a share of 61.60pc in GDP on account of contraction of the industrial output.

Production in the large-scale manufacturing sector which leads growth in other segments of the economy because of its multiplier effect and contributes a lion’s share in tax revenue and exports, plunged by 7.8pc. Industrial sector as a whole has recorded negative growth of 2pc. Interestingly, the performance of small industries did not fall in the negative zone.

However, agriculture, which is largely in the informal sector and has not been much directly affected by the coronavirus or lockdown has recorded a growth of 2.67pc, a significant surge from last year’s dismal 0.6pc despite a sharp fall in cotton crop. It provided food and shelter to daily wage earners who lost their livelihood due to the lockdown in urban centres and returned to their countryside homes to save themselves from starvation. The sector still employs close to 40pc of the country’s labour force.

The pre-Covid-19 economic growth was scaled down to 3pc from the budgeted target of 4pc and according to independent agencies and economists, the slide is continuing. To quote the Planning Commission, stabilisation was achieved at the cost of economic growth. As this shows official policies quite often worked for cross purposes whether it was a high central bank policy rate, rupee depreciation or regulatory curbs on imports etc. Hence much of the national debate on the economy was focused on these issues.

Owing to the severe impact of Covid-19 on the economy, the economic survey estimates that the number of people below the poverty line may rise from the existing 50 million to 60m. In an evolving situation, it is not possible to gauge the reality but the survey estimates that depending on limited, moderate and complete lockdown and their durations, 1.4m to 18.53m jobs could be lost.

Some notable initial progress was made in achieving macroeconomic stability during the first three quarters of the current fiscal year but it remained fragile in the absence of long-neglected structural reforms. In the past, macroeconomic stability was managed without structural reforms which sustained 3-4 years of high to moderate economic growth to be followed by instability and economic downturn.

Much of the stability achieved has been eroded because of stimulus and relief package of Rs1.24tr, sharp fall in tax revenues and substantial pick up in non- development expenditure. The total expenditure is stated to have increased by 15.8pc as reported by the media.

Unveiling the Economic Survey, Dr Shaikh said the latest pre-corona Federal Board of Revenue revenue projected at Rs4.7tr has been scaled down to Rs3.9tr. This loss was partially compensated by the non-tax revenue, which to quote the prime minister’s advisor, shot up to Rs1.6tr against a target of Rs1.1tr. Thus, the economic survey notes that during July-March overall revenues grew by 30.9pc with a jump of 160pc in non-tax revenues and an increase of 13.7pc in tax revenue. The lower growth in tax revenue, the document says, was due to a substantial decrease in petrol prices, record fall in imports and lower growth in the manufacturing sector. However, tax experts attribute much of growth in tax revenue to double-digit inflation and far less to depressed economic activities.

The current year will end with a fiscal deficit of 9.1pc. The total public debt from July 2019 to March 2020 soared to 88pc, up from 74.2pc of the GDP from the corresponding period of last year. And if liabilities are added, the ratio jumps to 102.6pc of GDP. Empirical evidence shows that most of the countries which have succeeded in balancing the government’s books and achieving durable stability have focused on rightsizing the government. Tax exemptions have sur­ged to Rs1.15tr this year. Critics recall that it was half the amount a few years ago. The circular debt in the energy sector and huge losses of bleeding state-owned enterprises are far from being resolved.

The government did succeed in curtailing imports during July-April by 16.2pc but exports were on a downward trajectory, falling 3.9pc during the same period as compared to last year’s comparative figure. However current account was re­duced by 71pc. The exchange rate remained relatively stable after the rapid depreciation of the rupee. Foreign excha­nge reserves were replenished through external capital and financial inflows and dollars remitted by overseas workers.

As the current trends observed in the economic survey indicates both high growth and durable stability may remain elusive in the immediate future. The situation calls for a culture change in the country’s economic management.

Published in Dawn, The Business and Finance Weekly, June 15th, 2020