KARACHI: The State Bank of Pakistan (SBP) has said Pakistan’s economy maintained its growth momentum during 2015-16 despite suffering from heavy losses in the agriculture sector.
According to a press release issued by the SBP on the release of its third quarterly report for 2015-16 on the state of Pakistan’s economy, industrial and services sectors’ growth accelerated on the back of better energy supply and improvement in security situation.
Other key macro-economic indicators also improved during 2015-16, the report noted. For example, average CPI inflation was almost half the level seen last year. Meanwhile, inflationary expectations also subdued. “This ease in inflation primarily came on the back of continued low commodity prices in the global markets (and its swift pass through to domestic consumers, particularly for petroleum, oil and lubricants products), comfortable supplies of key food items, and stable exchange rate,” it said.
Another positive for the economy, as mentioned in the report, was the surplus in the external account during the first nine months of the year, which was led by largely contained oil payments, a modest rise in worker remittances and foreign currency loans. Hence, the SBP’s reserves reached $16.1 billion (aggregate reserves including banks) by end-March 2016. “This amount was sufficient to finance four months of the country’s import bill, and more than twice the short-term payments,” it added.
Fiscal indicators also witnessed broad improvement: the budget deficit reduced to 3.4% of GDP in Jul-Mar 2015-16 from 3.8% in the same period last year. More importantly, the country recorded a primary surplus during this period. Higher revenues, contained expenses and larger surplus from provinces led to this improvement in the fiscal account.
According to the report, besides subdued commodity prices, particularly oil, in the global market, the policy support also played a key role in improving macro fundamentals. An expansionary monetary policy for the last one and a half years, development focus of fiscal spending, particularly on infrastructure projects that also encouraged construction and related activities, better energy management and CPEC-related initiatives are a case in point.
The report also identified low investment rate, continued weakness in exports, slowdown in remittances, and a narrow tax base despite stop-gap measures by the government to increase tax collection as some of the key challenges for the economy. These need to be tackled through structural reforms so that the recent improvement in macro fundamentals can be sustained, it said.
