KARACHI: The State Bank of Pakistan (SBP) said on Friday that prospects for economic growth remain strong, noting that the economy is poised to achieve the growth target of six per cent for 2017-18.

In its first quarterly report on the state of the economy, the SBP said rising income levels of consumers are fuelling retail sales and commercial activities.

However, there was an urgent need for finding more avenues for foreign exchange earnings and realigning policies favouring exports growth by addressing long-term structural impediments.

“For the external sector, recent gains in exports growth and foreign direct investments (FDI) while significant were not enough to contain the overall balance-of-payments deficit,” said the report.

It added that the widening of the current account deficit associated with increased economic activity is a recurrent phenomenon in Pakistan and has undermined maturing growth cycles in the past.

While the report expressed satisfaction over the increased revenue in the first quarter of 2017-18, it said that earlier efforts aimed at increasing the tax base need to be more concerted and perhaps require new, innovative methods.

Says recent gains in exports ‘not enough to contain’ BoP deficit

The report raised the question whether the economy is doing well enough to sustain the virtuous equilibrium of high growth-low inflation into the medium and long terms. The report stressed the need for addressing the long-standing structural reforms in the fiscal and the external sectors for sustainability.

The report analysed the recent growth in exports and identified three reasons for it. Uninterrupted energy supplies to the manufacturing sector, increasing global demand and commodity prices and the recent exchange rate deprecation.

What stands out is the role of a benign inflationary environment for some time now that has helped spur the expansion in economic activities. Low and stable prices have facilitated and eased the process of economic decision-making.

“More tangibly, falling inflation along with healthy agriculture output and stable exchange rate has resulted in higher real rural incomes and urban wages. The resultant boost in consumption forms an integral part of the current economic growth paradigm,” said the report.

Low inflation has also allowed the SBP to cumulatively cut the policy rate by 425 basis points since the autumn of 2014.

The report suggested that average inflation in 2017-18 would remain below its annual target of 6pc.

However, there are two major risks to this inflation forecast: first, recent exchange rate depreciation through expectations channel and, after some lag, through the higher imported goods’ price can seep into domestic prices; second, uncertain global oil prices pose both upside and downside risks.

The report said in the first quarter, the fiscal deficit was 1.2pc of gross domestic product, lower than 1.4pc recorded in the corresponding period of the last year.

Total revenue recovered strongly, showing an 18.9pc increase in the three-month period against an 8pc decline in the same period a year ago.

“Against this, consolidated federal and provincial expenditures grew 12.8pc compared to 2.8pc increase in the same period last year,” said the report.

Published in Dawn, January 20th, 2018

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...
New terror wave
Updated 27 Mar, 2024

New terror wave

The time has come for decisive government action against militancy.
Development costs
27 Mar, 2024

Development costs

A HEFTY escalation of 30pc in the cost of ongoing federal development schemes is one of the many decisions where the...
Aitchison controversy
Updated 27 Mar, 2024

Aitchison controversy

It is hoped that higher authorities realise that politics and nepotism have no place in schools.