UNCERTAINTY

The year 2018 has ended with a hangover of uncertainty on the economic, political and social fronts. Consequently, the outlook for 2019 is seen with some apprehension. Big question is whether domestic financial crisis will be finally overcome or it will be a collapse on the economic front. Also, will the political temperature cool down and joint efforts will be made to introduce legislation for implementation of many structural reforms needed. Further, will the process of accountability proceed in a just and proper way and lead to visibly less corruption. These are some key elements characterizing uncertainty about the prospects for 2019.

Last year the growth was 5.8 percent, SBP reduced it and projected it to 4.3 percent and it is expected to be around 3 percent after Pakistan’s near term expected entry into IMF program. This growth concern will spillover to overall employment level and the reduction in employment level will hit the stability of the government. Initial period of 2019 is going to be a correcting period, after that there will be a recovery period for Pakistan’s Economy, current account deficit is expected to ease off and will be near to $10 to $11 bln in 2019 as compared to $19 bln as things are getting back on track.

Gross foreign exchange reserves of the SBP are currently at $7.2 billion barely enough to provide import cover for six weeks. They have fallen by 26 percent since the start of the financial year. This has happened despite the receipt of special assistance from China in July of $2 billion and deposits with SBP from Saudi Arabia of $1 billion each time in November and December, respectively. Therefore, the underlying position of the balance of payments continues to be adverse. In the absence of this support from friendly countries reserves would have fallen to only $ 3.2 billion, barely sufficient to provide import cover for only three weeks.

The Pakistani rupee has depreciated 30% versus the US dollar, interest rates rose by 450 basis points between December 2017 and February 2019, and inflation is rising; all factors which affect business and consumer confidence and the private sector’s debt repayment capacities, Moody’s noted.

In 2019, people are hoping that the new government will revive the fading economic and business confidence and minimize the uncertainty for the working classes. The year ahead will dictate the government’s performance and determine how far the new government succeeds in fulfilling its vision and promises it made after it came to power.

Experts believe that measures taken by the government to discourage imports, smuggling, under-invoices and phasing out of black economy will yield a positive result in 2019.