The downturn in the country’s exports during the last month should go a long way in tampering the government’s exceedingly optimistic view of a more-than-expected quicker economic recovery based on early signs of improved indicators in June and July.

The ‘indications’ of an economy recovering from the losses inflicted by the Covid-19 health crisis had also prompted Prime Minister Imran Khan to declare an early victory. “The economy is on right track,” he had tweeted as the current account balance posted a surplus in July — the fourth monthly current account surplus since October 2019 — on the back of a rebound in exports and the surge in remittances sent back home by the Pakistanis working overseas. He was not the only one to get swayed by the short-term trends though.

Read: In truth, there is no indication that the economy is 'on the right track'

The overall trend points towards a rebound in the economy as the Covid-19 curve keeps flattening. The large scale industrial output has substantially increased in May-June after witnessing the most severe contraction in April amid nationwide enforcement of the lockdown to contain the spread of the coronavirus infections. The output is expected to continue to forge going forward with occasional hiccups like the 27 per cent fall in total cement dispatches last month owing to the slowdown in construction activities because of rains, and Eid and Muharram holidays.

Unnecessary hype on small wins will not help, even politically. A second wave of the Covid-19 pandemic — as is being predicted — in winter may wash away these little gains

The trade deficit in the first two months of the present year has shrunk by 8.3pc to $3.4 billion in spite of the 20.9pc decline in exports in August from a month ago. The impact of the urban flooding in Karachi and the disruptions in port operations on account of recent heavy rains on the nation’s export receipts from the August shipments will show later on, according to some exporters. The textile exporters have started seeing parts of their business bounce back as Europe and America reopen their markets to foreign suppliers. Though most of them remain bullish they don’t see demand from their buyers, at least for some of their products, pick up any time soon.

The tax collection by the Federal Board of Revenue has grown by 2pc to Rs594bn during the first two months of the ongoing fiscal year from the same period the previous year, indicating an expansion in economic activity in the country. But the collection will appear quite meagre considering the rate of headline inflation of 8-9pc.

The July current account balance did swing into a surplus of $424 million from a deficit of $100m in June and $613m a year ago. However, exports — one of the three factors to have contributed majorly to the July current account surplus — are already on the decrease.

The real test of the government will be to convince the business people to invest in the manufacturing industry, especially in the export-oriented sectors

The growth momentum in remittances is also forecasted to fall sharply going forward as Pakistani workers, particularly based in the Gulf countries, lose jobs and return home owing to the economic downturn caused by the pandemic in their host states. Similarly, the contraction in imports — the third major contributor to an improved current account picture — owes itself chiefly to the reduction in import of machinery and the fall in the global oil prices. How will the lack of new investment in industry and an upturn in oil prices affect our “economic gains” is anybody’s guess.

There is no doubt that the overall business confidence remains positive even though there are apprehensions that the pace of economic recovery will be quite slow, at least during the next six to 12 months. The short-term trends are something to be optimistic about, given a potential economic bounce-back over the next several months. But, at the same time, these also bring up new challenges for the government: how to sustain this modest economic recovery and address the underlying structural issues?

Unnecessary hype on small wins will not help, even politically. A second wave of the Covid-19 pandemic — as is being predicted — in winter may wash away these little gains. The people need jobs and improvement in their incomes for better living standards. The real test of the government will be to convince the business people to invest in the manufacturing industry, especially in the export-oriented sectors.

The harder part begins now.

Published in Dawn, The Business and Finance Weekly, September 7th, 2020