Snapshots of key economic developments in fy19.

Byline: Ahsan Nisar

The economy of Pakistan experienced adjustments during fiscal year 2019, which includes - the exchange rate was realigned with the market fundamentals; interest rates were sharply increased; Public Sector Development Expenditure was significantly curtailed and energy prices were raised.

These measures were taken to manage the twin deficit crisis, caused by the consumption-led growth of the past few years. The policy actions helped contain demand pressures and contributed to import compression, which led to a significant reduction in the Current Account Deficit. However, in the process, Large-Scale Manufacturing contracted and inflation rose above its target after four years. Meanwhile, high input costs combined with water shortages undermined agriculture sector's output and the drag in the commodity-producing segments spilled over to the services sector as well. These developments impacted real rural incomes and urban wages, thus constricting the household budgets and ultimately savings and consumption. Resultantly, the real GDP growth fell to its lowest in the past nine years.

Economic outlook for 2020

Real GDP growth is likely to remain subdued, though the early signs of recovery are already visible. Inflation is expected to exceed its annual projection. The Current Account Deficit, after shrinking on YoY basis during FY19, is anticipated to subside further in FY20. Exports are projected to pick up during the year, conditional on demand situation among the country's major trading partners and buoyancy in commodity markets. Workers' remittances are expected to remain robust in FY20 on the back of measures taken and incentives given to overseas Pakistanis remitting under the Pakistan Remittance Initiative.

Sectoral Updates

Oil marketing companies:

As battle for market share heats up, Oct'19 volumetric offtake clocked in at 1.6mn tons, moving +7% MoM and -3%YoY with HSD sales continuing to crater on the back of persistent grey-product penetration, whereas changing power mix continues to weigh on FO's sales (down 19%YoY). In terms of market shares, PSO/APL/HASCOL account for market shares of 46/10/8% during Oct'19 where a comparison with Sep'19 reveals HASCOL increasing its market share by 3ppts while PSO/APL losing theirs by 1ppt each. 8%YoY decline in cumulative POL product sales for 4MFY20 underpins a fall in demand...