State Bank expects 5-6 pct GDP growth in current fiscal year

KARACHI: The State Bank of Pakistan on Saturday released its second quarterly report for the current fiscal year 2016-2017 and stated that the overall economic environment continues to remain conducive for growth.

The report titled ‘The State of Pakistan’s Economy’s gives an economic overview of the economy, indicating factors responsible for the positive outlook including the stance on monetary policy, increase in development spending, substantial growth in private sector credit especially for fixed investment, and ongoing China Pakistan Economic Corridor (CPEC) inspired activity in power sector and infrastructure.

These factors have also led to an improvement in the investor confidence, reflected in capacity expansion plans by a number of industries and acquisition of domestic companies by foreign investors.

The real GDP growth in fiscal year 2016-2017 is expected to be higher than the last year, and the latest projections indicate real GDP growth in the range of 5 to 6 percent, the report said.

Meanwhile, the recent pick up in the large-scale manufacturing (LSM) growth, improving energy supplies, increase in value-added textile exports, and a likely rebound in agriculture growth due to increase in production of major crops further add to the optimism.

In addition, net Foreign Direct Investment (FDI) increased by 10.5 percent to $1.1 billion from US$ 978 million last year. This led to net increase of US$ 129 million in liquid foreign exchange reserves.

Additionally, current trends like rising sale of vehicles, oil consumption by the transport sector, internet subscription, and external trade volume reflect positively on the performance of the services sector.

This suggests the economy is maintaining growth momentum, which has muted impact of increase in international commodity prices and inflation rate of 4 percent remained lower than the target. This led to decrease in fiscal deficit record at 2.4 percent of the GDP and stability in external sector.

There current account deficit almost doubled to $3.5 billion in the second quarter of the fiscal year as compared to the first half, largely due to lack of payment from Coalition Support Fund (CSF), decline in the exports and a surge in the imports.

This does not bode well for the economy particularly in view of the rising oil prices and shifts in international capital markets due to rise in US interest rates, even though widening in current account deficit is expected when the economy is taking off.

The surge in imports is due to growth-inducing capital goods such as machinery, fuel and metal groups which accounted for more than half of the total imports.

The report states that challenges in the external and fiscal accounts need to be addressed to sustain macroeconomic stability which has pushed the economy towards a desirable (low inflation-high growth) balance.

It recommends boosting foreign exchange receipts by reviving exports and private foreign investment, urgent measures to contain imports especially of consumer and luxury items to manage the import bill.

There is also a need to improve competitiveness and administrative measures such as reducing the cost of doing business, enhance productivity, and remove structural impediments in the export sector.

Similarly, the government needs to take structural reforms and stabilisation measures such as broadening the tax base which showed a 6.2 percent deceleration for revenue collection and continue higher spending on social and infrastructural development.