KARACHI: The State Bank of Pakistan (SBP), in its second quarterly report, said that despite the persistent structural weaknesses in the country’s overall economic performance, the GDP growth is likely to remain higher than last year’s level.
According to the SBP report, the energy shortages continue to be a serious issue, which held back growth in a number of industries. Similarly, Pakistan has not been able to attract sufficient foreign direct investment, even when our peer countries are experiencing rising FDI inflows, said the report.
Moreover, tax revenue growth remains sluggish despite several measures introduced during the year and the losses in public sector enterprises (PSEs) remained a burden on scarce fiscal resources, as restructuring and privatisation programme of PSEs could not gain momentum as expected, said the SBP report.
In this context, the windfall gain from the collapse in international oil prices, low inflation, and improvement in balance of payments provide an opportunity to expedite difficult structural reforms in the energy sector, PSEs, revenue generation, and overall governance to put the economy on a higher growth trajectory, said the report.
Large scale manufacturing (LSM) showed modest growth of 2.3 per cent during first half of fiscal year 2015, less than half the growth achieved during the same period last year (LSM growth was 6.6pc in the first half of 2014).
While the persistent energy shortages (especially of gas) constrained activity in textiles, paper, leather and glass, the delay in cane crushing took its toll on sugar production in the first half of the year.
More specifically, commercial banks’ investment in government securities increased by Rs667.6 billion during H1-FY15 to Rs4,735 billion.
“The government also accepted huge sums in these auctions to lengthen the maturity profile of its debt, and to substitute some of its borrowings from SBP,” said the report, adding that this enabled the government to contain its borrowing from SBP within the ceiling agreed with the IMF for end December 2014 and meet the limit of zero quarterly net borrowing from the central bank.
The benefit of reduced international oil prices was passed on to consumers in Pakistan, to a larger extent compared with peer economies, said the SBP report.
This, along with a stable exchange rate and softened inflationary expectations, led to a steep fall in CPI inflation from 8.9pc in H1-FY14 to only 6.1pc during H1-FY15.
