With
continued strong performances by agriculture and services sectors, and a
four-year record high large-scale manufacturing growth during the first
half of FY18, Pakistan’s economy is set to surpass last year’s growth
rate, the State Bank of Pakistan (SBP) has said in its second quarterly report for FY18 on the ‘State of Pakistan’s Economy’.
Inflation
and the fiscal deficit were both contained during July-December 2017,
whereas revenue growth has outpaced last year’s level, the central bank
report said.
The
report pointed out that increased consumer spending has led to a strong
growth in durables such as automobile and electronics, while the
ongoing infrastructure and construction activities have stimulated the
allied sectors of cement and steel. “Encouragingly, various industrial
players across different sectors are investing in capacity expansions
and product diversification. The private sector also continued its
borrowing from scheduled banks for long-term projects. On the
agriculture front, while all major kharif crops performed well, wheat
production came under pressure due to lower area under cultivation,” SBP
said.
Meanwhile,
core inflation remained higher on average in H1 FY18 due to
continuously rising education and healthcare costs. However, its pace
has stabilised in recent months.
The
report highlighted that the growth in revenue collection outpaced the
increase in expenditures in H1 FY18, which led to a broad-based
improvement in fiscal indicators. The overall fiscal deficit was
contained at 2.2 per cent of GDP, down from last year’s 2.5 per cent.
Revenue growth gained impetus from greater real economic activity,
rising imports (both quantum and prices), and higher sales volumes of
petroleum, oil and lubricants (POL) products. Non-tax revenues also rose
over last year, led by higher SBP profit and a surge in receipts from
property and enterprise, civil administration and other miscellaneous
receipts.
On
a cautionary note, the report added that while the real sector of the
economy was performing well, the external account presented challenges.
The 8-month-long consecutive export growth and a rebound in workers’
remittances were welcome developments, but they were overshadowed by
rising imports. Resultantly, the current account deficit increased to
$7.4 billion in H1 FY18, from $4.7 billion last year. Even though
financial inflows were higher this year, they were insufficient to
offset the rise in the current account deficit. Consequently, SBP’s
liquid reserves came under pressure, and the PKR/USD parity depreciated
by 5.0 per cent in H1 FY18.
Pakistan’s
economy has reached a familiar juncture, where Balance of Payments
challenges warrant concerted and timely measures to preserve the
macroeconomic stability and growth momentum. If the external challenges
are addressed, other fundamentals are strong enough to put it on a
sustainably high growth path, the report concluded. (RKS)