Banking on remittances in the wake of deteriorating macroeconomic indicators.

As the economy moves towards the end of FY20, it continues to face high uncertainty owing to the challenges posed by the COVID-19 pandemic on several economic fronts. High levels of uncertainty are also reflected in recent State Bank of Pakistan (SBP) surveys. The Consumer Confidence Survey of May 2020 recorded a sharp deterioration in both consumer confidence and expected economic conditions following their improvement in March 2020. Similarly, the Business Confidence Survey of April 2020 registered its lowest historical level for overall business confidence.

Importantly, Pakistan is not an outlier in this regard, as the global economic uncertainty index also recorded its historic peak in April 2020, indicating a global manifestation of uncertainty at present. However, going forward, there are some prospects for gradual improvement in economic activity as the government is easing the lockdown while allowing many sectors to resume activities.

Achieving the target of 2.1% growth in real GDP during FY21 will require a parallel improvement in underlying demand. This requires effective utilization of Public Sector Development Programme (PSDP) as per its allocation in the budget for FY21, while SBP schemes continue to support liquidity needs of both businesses and consumers. The gross revenue target of PKR 6.57 trillion for FY21 is challenging as it entails significant growth over FY20 in a low economic activity environment. The inflation outlook is encouraging, although not without risks. Low domestic demand should continue to support a further softening trend in CPI headline inflation and stability in core inflation over the coming months. As a result, inflation is expected to fall in the range of 7.0-9.0% during FY21.

The outlook for the external sector is reasonably comforting, with the current account expected to remain bounded. While higher competition among competing exporters amid recovering global demand in the post-COVID-19 setting may restrict any quick recovery in exports while imports are expected to remain subdued due to low domestic demand and soft international oil prices in the coming months. While workers' remittances may remain low as current disruptions and declining oil prices have strained economies of GCC countries, some cushion in services imports may...