In its third quarterly report on the state of economy, the State Bank of Pakistan observes a positive change in the macroeconomic environment, but clearly expresses concern over the falling exports. The report says that the first and foremost, exports, the prime source of foreign exchange earnings for the country, have been stagnant in the recent past, and declined during Jul-Mar FY15. The report adds that the current account – benefiting from a robust growth in workers’ remittances – higher inflows under coalition support fund, and a sharp reduction in oil prices, have posted a notable surplus in the third quarter while the SBP liquid foreign exchange reserves became more than double the level seen a year ago, which are enough to finance three months of the country’s imports. The report also claims that resulting stability in the exchange rate together with the government decision to pass-on the benefit of fall in international oil prices to domestic consumers and the prudent monetary management, not only pushed inflation down to a decade’s low, but also eased inflation expectations as shown by IBA-SBP’s Consumer Confidence Survey.
The government has not resorted to inflationary borrowing from SBP and retired Rs 674 billion amid recording a GDP growth of 4.4 percent. The government is not only able to contain its borrowing from SBP within the IMF ceiling, but also met the limit of zero quarterly borrowing prescribed in the SBP Act, 1956. It says that reduction in inflation is broad-based: “All measures of core inflation (non-food-non-energy, trimmed, and Relatively Stable Component of CPI) posted noticeable declines during the period of analysis.” The report says that as the budget deficit slightly narrowed to 3.8 percent of the GDP, the overall expenditures grew by 8.3 percent during the third quarter.
As a matter of fact, mismanagement is the key to policy failure in the country whether it is the matter of financial discipline or falling exports. The commodity producing sectors, agriculture and industry, recorded a relatively low growth in the third quarter and the bank calls for focusing on structural rigidities, which have been constraining the performance of various sectors. Pakistan has lot of export potentials, but the government will have to focus on the export of value-added products rather than the raw material. There is a need to limit the export of edible commodities such as agriculture produces, meat and fruits but find a market for the products which are manufactured in abundance in industrial cities of the country such as Gujranwala, Gujrat, Faisalabad and Sialkot.
