Thu October 19, 2017
Advertisement
Can't connect right now! retry

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!

Business

October 13, 2017

Share

Advertisement

SBP says economy on growth track, twin deficits pose threat

SBP says economy on growth track, twin deficits pose threat

KARACHI: Pakistan’s growth momentum is expected to remain intact, but there is a growing risk of widening of twin deficits due to superfluous imports and increase in public spending, the central bank said on Thursday.   

The State Bank of Pakistan (SBP), in its annual report on state of the economy, forecast the growth between 5 to 6 percent during the current fiscal year due to improvement in agriculture, services and industrial sectors. The real GDP growth is, however, projected to come close to the 6 percent target for FY2018, it added.  

SBP said the economy grew 5.3 percent in FY2017, the highest growth achieved during the last 10 years. “The economy is expected to continue benefitting from accommodative macroeconomic policies, activity related to CPEC (China-Pakistan Economic Corridor), and consistently improving domestic energy supply and security situation,” it added.

The Bank, however, warned current account deficit is expected to breach the 2.6 percent of GDP target in the current fiscal in the wake of rising imports and sluggish remittance flows.  

“The external and fiscal accounts may remain under pressure expected to emanate from likely elevated import demand and increase in public spending, by provincial governments in particular, in a bid to complete development projects before the upcoming general elections in the country,” it said.

The central bank projected current account deficit at around the last year’s level of 4 to 5 percent. The current account deficit stood at 4 percent of GDP in the last fiscal as it widened to $12.1 billion from $4.6 billion a year ago. 

“The higher official and private inflows helped to partially finance the current account deficit,” it added. SBP said import demand, both for machinery and raw materials as well as consumer goods, is expected to remain strong during FY2018. 

“Growth in exports and workers’ remittances is expected to recover (in FY2018),” it added. “The exports are expected to benefit from a recovery in global commodity prices and ease in energy constraints.” 

There has been a double-digit growth in exports recorded during the first two months of the current fiscal year. The central bank said the initiatives under Pakistan remittance initiative could help in attracting more receipts through official channel. The key initiatives include new products for diaspora, extending the tie-up arrangements and plans to further reduce the cost of fund transfers.

“Incorporating these developments, workers’ remittances are projected to remain in the range of $19 to 20 billion (in FY2018),” it added. “Yet, the pace of increase in exports and remittances is likely to be slower compared to increase in imports.”

SBP emphasises on containing unnecessary imports and expanding export base in order to keep current account deficit at the manageable level. The central bank projected average consumer price inflation in the range of 4.5 to 5.5 percent during the current fiscal year. Average CPI inflation rose to 4.2 percent during FY2017 after falling to 2.9 percent in FY2016. 

“Sufficient food stocks (wheat, rice, and sugar) in the country, weak domestic oil prices and stable exchange rate are expected to offset the impact of expected further rise in domestic demand,” it said.  The central bank said budget deficit could overshoot the target of 4.1 percent of GDP envisaged by the government for FY2018. Its budget deficit projection is between 5 and 6 percent for the current fiscal. The deficit was recorded at 5.8 percent during the last fiscal. 

“Given the capital spending requirement of the government for completing various projects under CPEC and a likely increase in provincial spending during the election year, achieving the target… in FY18 could be challenging,” it added. “Moreover, any shortfall in revenue may keep the fiscal deficit close to FY17 level.” SBP said the growth in revenue collection needs to be accelerated to maintain the current pace of spending on infrastructure and social development projects. “This can be achieved by deepening the reforms initiated at federal level and stepping up efforts by provinces to enhance their own tax collection.” 

The central bank suggested further improvement in business conditions to strengthen recovery in investment and help switch away from current consumption-led to investment-cum-export oriented growth.

Advertisement

Comments

Advertisement

Topstory

Opinion

Newspost

Editorial

National

World

Sports

Business

Karachi

Lahore

Islamabad

Peshawar

Advertisement