Jun 302017

KARACHI: The State Bank of Pakistan (SBP) on Friday said the growth in the country’s real gross domestic product (GDP) remained on an upward trajectory and rose to a decade-high of 5.3% in fiscal year 2016-17.

In its third quarterly report for FY17 on the state of Pakistan’s economy, the SBP noted that economic indicators like private sector credit and investment also showed an encouraging picture whereas inflation stood below target.

The report highlighted the revival in the agriculture sector in FY17, which was supported by favourable policy measures, including fertiliser subsidy, reduction in sales tax on tractors and increased access to finance.

Better agriculture had, in turn, positive spill-over for trade and manufacturing sectors. The Public Sector Development Programme (PSDP) and China-Pakistan Economic Corridor (CPEC)-related activities also continued to boost industries associated with the construction sector.

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The overall improvement in business sentiments along with supportive policies (like historically low interest rate, high infrastructure spending and better law and order) encouraged a number of firms to pursue expansion plans, the report said.

This was reflected in a significant surge in private sector credit off-take with a sizable share of fixed investment loans. At the same time, an increase in machinery imports was also noted.

The report pointed to the decline in exports and worker remittances, which along with a rise in imports led to a higher current account deficit compared to the previous year.

On the financing side, the official external inflows in July-March FY17 stood around the same level as in the previous year while both foreign direct investment (FDI) and foreign portfolio investment (FPI) inflows increased.

Although the SBP’s foreign currency reserves declined during the period, these were sufficient to comfortably finance more than four months of imports.

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Regarding fiscal situation, the report said Pakistan’s fiscal deficit stood at 3.9% of GDP in July-March FY17.

The expenditure side of fiscal operations remained well managed with contained growth in current expenditure and robust growth of about 15% in development expenditure. However, the growth in tax revenues stood lower than the target.

In the report, the SBP underscored the importance of sustainable levels of current and fiscal accounts in order to maintain the prevailing growth momentum and hard-earned economic stabilisation.

Opportunities and challenges

The positive spill-over of recovery in the global economy, particularly advanced economies, offers healthier trade prospects. Pakistan’s exports could also benefit from this evolving dynamic if exporters are able to diversify their export products at competitive prices, the central bank noted while talking about the economic outlook.

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Growth prospects of Pakistan’s economy from fiscal year 2018 onwards would largely hinge on planned infrastructure projects and capacity expansion by industries.

In order to make these plans a success story, enhanced coordination amongst all public sector institutions would be more crucial.

Also, continuity and consistency in policies, especially those related to investment and industry, would be necessary to ensure sustainability of the growth momentum, the central bank said.

The post GDP growth hits the highest in a decade appeared first on The Express Tribune.

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