The State Bank of Pakistan (SBP) has decided to keep the SBP policy rate unchanged at 6.5 percent in the light of macroeconomic indicators, which had earlier led the central bank to continue with its accommodative monetary policy stance and had slashed the policy rate by a cumulative 300 basis points in fiscal year 2014-15. The GDP growth for financial year 2015 was recorded at 4.2 percent, lower than the set target, but slightly higher than the previous financial year. Industrial sector missed the target as the large-scale manufacturing recorded a lower growth while the agriculture sector made some improvement despite losses to major crops from heavy rains. However, the construction, mining and services sectors performed well during the year.
A sharp decline in CPI inflation and improvement in external account remained the key factors to keep the policy rate unchanged while fiscal deficit, which recorded a decline of 27 percent, and extended fund facility improved the market sentiments and helped upgrade sovereign ratings by international rating agencies. The country’s exports contracted by 3.7 percent and net foreign direct investment declined by 0.3 percent of the GDP while structural slackness, global recession, and lower commodity prices remained an area of concern for the policymakers. As a matter of fact, the government has to ease restrictions to attract foreign direct investment. The bank believes that the macroeconomic stability should reflect positively on real economic activity as average CPI inflation has come down from 8.6 percent to 4.5 percent from July-June during the previous financial year. However, adverse impact of floods and possible increase in electricity tariff during the current fiscal year could have an upward pressure on inflation. It is hoped that the falling international oil prices could keep inflation level in the country on the lower side as the oil prices are not bottomed out yet.
According to SBP Governor Ashraf Mehmood Wathra, the balance of payments position has been improved in the second half of 2014-15 due to decline in import bill and steady growth in remittances from Pakistani expatriates. The government has to adopt austerity measures to improve financial condition of the country and put all its efforts to overcome energy crisis. There are some political decisions which only add to the woes of this nation while efforts should be made to curtail the non-development expenditures. There is need to slash the budget of the Presidency, the Prime Minister’s House as well as the governors and the chief ministers houses. The government should improve its sincerity with actions and not with words.
