SBP lauds govt efforts to uplift economy facing many challenges

KARACHI: The State Bank of Pakistan (SBP) appreciated efforts of the incumbent government to cure country’s ‘ill’ economy with its immediate steps after coming into power, ARY News reported on Tuesday.

According to the first quarterly report of the current fiscal year 2018-19, released by the SBP, the overall macroeconomic environment remained challenging during the specified period.

The report notes that the concern was the steep rise in global crude prices, which not only reinforced the already strong underlying inflationary pressures in the economy, but also eclipsed emerging improvements in the external sector.

However, appreciating the government’s swift measures to support the economy, the report says that responding to these challenges, the new political regime immediately announced cuts in development spending, partially reversed tax relief measures, and also explored avenues to bridge the external financing gap.

The production of all major kharif crops remained lower as compared to the last season, due to lower water availability, which led to a decline in the total area under production. Furthermore, crop yields suffered due to reduced fertilizer purchase by the farmers because of rising prices of both urea and DAP, the report says.

The large-scale manufacturing also contracted by 1.7 percent during Q1-FY19, after recording a healthy growth of 9.9 percent during Q1-FY18.

Noticeably, the output of construction-allied and consumer durable segments, which were the major drivers of growth last year, decelerated on a YoY basis.

The report highlighted that with the underlying inflationary pressures remaining strong and the twin deficits staying at elevated levels, the monetary policy continued to move along the adjustment path.

The report also observed that the consolidated revenues grew by 7.5 percent during the quarter; however, this pace was lower than the 18.9 percent uptick witnessed during Q1-FY18.

On the external front, the report highlighted that the continued exports growth and a steady increase in workers’ remittances partially helped contain the current account deficit. However, the level of this deficit remained a concern, as rising oil prices resulted in the quarterly import bill crossing the $4.0 billion mark.

With foreign investments declining on a YoY basis and external borrowing by the private sector remaining subdued, the financial inflows proved insufficient. Resultantly, pressure on the balance of payments continued to mount, with the country’s forex reserves declining by $1.4 billion and the rupee depreciating by 2.2 percent during the quarter.

Nonetheless, the report says, the financing of the current account might improve going forward as there is an expectation of receiving higher foreign inflows from both private and official sources during the second half of FY19.

Not only would this bolster the country’s forex reserves, but also ease pressures in the domestic foreign exchange market.

The report lays particular emphasis on initiating the needed structural reforms in order to push the country’s productivity frontier and take the growth momentum forward.