With the pandemic, the government has prioritized managing COVID-19 infection waves, initiating a mass vaccination campaign, increasing its cash transfer program, and providing supportive monetary conditions to support economic growth. Faced with the fourth COVID-19 wave, the government established micro-lockdowns, which successfully reduced the spread of the infection while allowing economic activity to continue, reducing the economic impact. Vaccination rates have been increasing, although they are still low. Only about 12% of the overall population had been properly vaccinated as of September 2021.
In FY22, the 39-month IMF-Extended Fund Facility (IMF-EFF) will most likely restart, with the 6th Review mission scheduled for October 2021. Domestic revenue mobilization, the elimination of power sector arrears, energy subsidy reform, and more central bank operational autonomy are all key changes backed by the EFF, all of which are projected to enhance long-term growth.
Real GDP growth (at factor cost) is expected to have risen to 3.5 percent in FY21 after a decline of 0.5 percent in FY20, owing to low base effects and recovering domestic demand. Private consumption and investment are expected to have strengthened during the FY, bolstered by record-high official remittance inflows received through legitimate banking channels and an accommodating monetary policy. Government consumption is expected to have increased as well, though at a slower rate than in FY20, when the COVID-19 fiscal stimulus package was implemented. Net exports, on the other hand, are expected to fall in FY21, since import growth nearly doubled that of exports due to strong domestic demand. On the production side, industrial activity is expected to have rebounded after two years of contraction, thanks to strong large-scale manufacturing. Similarly, once universal lockdown measures were gradually relaxed, the services sector, which contributes for 60% of GDP, is predicted to have expanded. The agriculture sector, on the other hand, is projected to have slowed, owing in part to a near-30% drop in cotton production due to unfavorable weather conditions.
Despite decreasing from 10.7% in FY20 to 8.9% in FY21, headline consumer price inflation remained high owing mostly to strong food inflation, which is anticipated to disproportionately affect poorer households who spend a greater proportion of their income on food goods than non-food products. Real interest rates were negative during FY21, thanks to the policy rate being at 7.0 percent. This aided the recovery.
As substantial remittance inflows offset a bigger trade deficit, the current account deficit shrank from 1.7 percent of GDP in FY20 to 0.6 percent in FY21. With the issuing of US$2.5 billion Eurobonds, foreign direct investment declined but portfolio inflows surged. In FY21, the balance of payments surplus was 1.9 percent of GDP, and official foreign exchange reserves reached US$18.7 billion at the end of the year, the highest level since January 2017 and equivalent to 3.4 months of total imports. As a result, the Rupee gained 5.8% against the US dollar in the fiscal year, while the real effective exchange rate increased by 10.4%.
The budget deficit shrank to 7.2 percent of GDP in FY21, down from 8.0 percent in FY20, as revenue growth exceeded greater expenditures, thanks to stronger domestic activity. At the end of June FY21, public debt, including guaranteed debt, was 90.7 percent of GDP, down from 92.7 percent at the end of June FY20.
Poverty incidence, measured at the international poverty line of $1.90 PPP 2011 per day, is predicted to have reduced to 4.8 percent in FY21 from 5.3 percent in FY20, owing to the rebound in the industry and services sectors and the resulting off-farm employment prospects. However, this shift is not statistically significant, and the downside risks of lockdown-induced job losses and high food prices persist.
Budgetary and monetary tightening are projected to resume in FY22, after the 25-basis-point policy rate hike in September 2021, as the government refocuses on moderating increasing external pressures and addressing long-standing fiscal issues. With the execution of major structural reforms, such as those targeted at sustaining macroeconomic stability, increasing competitiveness, and improving the financial viability of the energy sector, output growth is expected to moderate to 3.4 percent in FY22 before strengthening to 4.0 percent in FY23.
With predicted domestic energy tariff hikes and increased oil and commodity costs, inflation is expected to pick up in FY22 before leveling off in FY23. Poverty is predicted to continue to decline, with a 4.0 percent unemployment rate by FY23. With greater economic growth and oil prices, the current account deficit is expected to widen to 2.5 percent of GDP in FY23. After tapering in FY22, exports are likely to rebound sharply as tariff reform initiatives gain pace, boosting export competitiveness. Furthermore, after benefiting from a COVID-19-induced transfer to formal channels in FY21, the increase of official remittance inflows is likely to slow.
Despite efforts to reduce the deficit, the deficit is expected to remain high in FY22, at 7.0 percent of GDP, and widen to 7.1 percent in FY23 as a result of pre-election spending. The implementation of essential revenue-enhancing changes, particularly the harmonization of the General Sales Tax, would help to reduce the fiscal deficit over time. In the medium run, Pakistan’s public debt will remain high, as will its vulnerability to debt-related shocks. This forecast assumes that the IMF-EFF program will proceed as planned.
The IMF-EFF program delaying or stalling, as well as the resulting external financing difficulties, exceedingly high domestic demand leading to unsustainable external pressures, more contagious COVID-19 strains necessitating widespread lockdowns, and a worsening of regional and domestic security conditions, including those stemming from the Afghanistan situation, are all major downside risks. All of this could cause essential structural reforms to be postponed.
How may Pakistan’s GDP be increased?
Pakistan intends to rebase its gross domestic product this year, which might help the country’s economy grow by expanding the scope of its economic operations.
What are the two methods for raising GDP?
- Consumer spending and company investment are generally the driving forces behind economic growth.
- Tax cuts and rebates are used to give money back to consumers and encourage them to spend more.
- Deregulation loosens the laws that firms must follow and is credited with spurring growth, but it can also lead to excessive risk-taking.
- Infrastructure funding is intended to boost productivity by allowing firms to function more effectively and create construction jobs.
What factors can influence GDP growth?
In general, there are two basic causes of economic growth: increase in workforce size and increase in worker productivity (output per hour worked). Both can expand the economy’s overall size, but only substantial productivity growth can boost per capita GDP and income.
What will Pakistan’s GDP be in 2025?
Pakistan’s GDP (gross domestic product) is expected to reach US$261.70 billion in 2025. By 2025, Pakistan’s real total GDP (gross domestic product) is predicted to expand by 1.89 percent. Pakistan’s GNI (gross national income) is expected to reach US$255.61 billion in 2025.
What is the formula for GDP?
Gross domestic product (GDP) equals private consumption + gross private investment + government investment + government spending + (exports Minus imports).
GDP is usually computed using international standards by the country’s official statistical agency. GDP is calculated in the United States by the Bureau of Economic Analysis, which is part of the Commerce Department. The System of National Accounts, compiled in 1993 by the International Monetary Fund (IMF), the European Commission, and the Organization for Economic Cooperation and Development (OECD), is the international standard for estimating GDP.
What are three approaches to boost GDP?
- The monetary worth of all finished goods and services produced inside a country during a certain period is known as the gross domestic product (GDP).
- GDP is a measure of a country’s economic health that is used to estimate its size and rate of growth.
- GDP can be computed in three different ways: expenditures, production, and income. To provide further information, it can be adjusted for inflation and population.
- Despite its shortcomings, GDP is an important tool for policymakers, investors, and corporations to use when making strategic decisions.
Is a higher or lower GDP preferable?
Gross domestic product (GDP) has traditionally been used by economists to gauge economic success. If GDP is increasing, the economy is doing well and the country is progressing. On the other side, if GDP declines, the economy may be in jeopardy, and the country may be losing ground.
What method do you use to compute GDP loss?
Calculate the GDP loss if the equilibrium GDP level is $10,000, the unemployment rate is 9.8%, and the MPC is 0.75. As a result, we have a $10,000 equilibrium level value. With a 9.8% unemployment rate and a 0.750 MPC, the unemployment rate is 759.8 percent. GDP loss=(100) 10000+125= (0.073510000) +125= 735 +125 GDP loss=(100) 10000+125= (0.073510000) +125= 735 +125 GDP loss= (0.073510 GDP loss = $860GDP loss = $860GDP loss= $860GDP loss= $860GDP loss= $860GDP
What is the problem with GDP?
This is just beginning to change, with new definitions enacted in 2013 adding 3% to the size of the American economy overnight. Official statistics, however, continue to undercount much of the digital economy, since investment in “intangibles” now outnumbers investment in physical capital equipment and structures. Incorporating a comprehensive assessment of the digital economy’s growing importance would have a significant impact on how we think about economic growth.
In fact, there are four major issues with GDP: how to assess innovation, the proliferation of free internet services, the change away from mass manufacturing toward customization and variety, and the rise of specialization and extended production chains, particularly across national borders. There is no simple answer for any of these issues, but being aware of them can help us analyze today’s economic figures.
Innovation
The main tale of enormous rises in wealth is told by a chart depicting GDP per capita through time: relatively slow year-on-year growth gives way to an exponential increase in living standards in the long run “History’s hockey stick.” Market capitalism’s restless dynamism is manifested in the formation and expansion of enterprises that produce innovative products and services, create jobs, and reward both workers and shareholders. ‘The’ “Economic growth is fueled by the “free market innovation machine.”