In its second quarterly report for financial year 2016 on the state of economy, the State Bank of Pakistan has indicated that Pakistan will have to manage $6 billion per annum for external debt servicing obligations until 2020. Despite global challenges, the country’s macroeconomic outlook appears stable, inflation is expected to stay low, risks on the external front have been moderated to a large extent and growth is likely to pick up. The bank expects up to five percent growth in the gross domestic product at the year end against the set target of 5.5 percent. Pakistan had achieved 4.2 percent target in the financial year 2014-15. However, fiscal deficit are expected to be between from 4 to 5 percent during the next fiscal year as against 5.3 percent during the financial year 2015-16. The bank also sees the accumulation of liquid foreign exchange reserves over the past couple of years as a source of encouragement. The accumulation was made possible by mobilization of internal resources and external loans.
The report says that the country is not facing any short term inflationary risk and the prices of goods are also not expected to recover in the international market anytime soon. A stable rupee is likely to keep inflation at bay and fiscal consolidation is expected to be maintained in the second half of the current fiscal year. The tax collections are also expected to be improved while the bank reserves have increased more than the increase in external debt, which can comfortably finance twice as much payment as are expected for the next one year.The report hopes that the industrial sector will continue to get push from the upbeat construction linked with infrastructural projects, including the China-Pakistan Economic Corridor. The bank says that optimism prevails in the performance of industrial sector, but the agriculture faced low cotton production. However, service sector growth hinges upon the contribution of wholesale and retail trade.
The State Bank has warned against strong domestic demand of non-oil imports. A potential revival in investment will generate an additional demand for imported capital goods and raw materials.However it will come as a challenge if the foreign exchange earnings fail to keep pace. As a matter of fact, the government will have to minimize its dependence on foreign loans and give tax relief to the industrial sector to stimulate growth in the country. The policymakers should understand that lower is the tax rate more is the investment and higher is the tax rate low will be the business and trade activities.
