Citing the report, SBP in its press release stated that marked improvement in security conditions, relatively better energy management, and persistently low global commodity prices, have positioned the economy to further improve on its performance going forward.
“Some improvements were already visible from the changes in key macroeconomic indicators during the first quarter of the year. Economic activity seems to be gearing up as large scale manufacturing recorded a noticeable increase over the last year”, SBP stated in the report.
“The current account deficit narrowed, which was comfortably financed by higher financial inflows; the country’s foreign exchange reserves recorded all time high levels, and were sufficient to finance import bill of seven months; fiscal deficit was reduced, along with a shift in its financing away from SBP; and inflation remained on low trajectory, SBP added.
SBP also mentioned that while these positive developments were welcomed, much needs to be done to ensure their sustainability.
“Although budget deficit for Q1-FY16 was lower than the same period last year, tax collection could not post the required growth. In order to keep the fiscal deficit within target without compromising on development spending, tax efforts have to be increased manifold, particularly by widening tax base and effective enforcement. It would be pertinent to mention here that with recent tax measures, FBR taxes have shown a significant Year-on-Year (YoY) growth of 16.8 percent in Jul-Nov FY16”, SBP stated in the report.
The State Bank also mentioned in its report that the Loss making Public Sector Enterprises (PSEs) remained a contingent liability on scarce fiscal resources and the privatization process of such PSEs is still at initial stages.
“Dwindling exports continued to eclipse overall healthy performance of the external sector. Specifically, exports recorded a year-on-year decline for the 3rd quarter in a row. More disturbingly, this decline was attributed primarily to lower quantum”, SBP stated.
“In addition to exports, FDI also needs to contribute more towards external sector sustainability. While it is encouraging that FDI from China is likely to increase due to progress on various infrastructure projects under the CPEC, the country also requires foreign investment in exportable sectors; and
extreme weather conditions in recent years have increased vulnerability of Pakistan’s agricultural sector. In FY16 also, Kharif crops (cotton and rice) have suffered from heavy rainfall”, the reported stated.