close
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!
July 31, 2020

State Bank links growth target success with PSDP utilisation

Business

July 31, 2020

KARACHI: The State Bank of Pakistan on Thursday tied the possibility of achieving growth of 2.1 percent in the current fiscal year with an effective utilisation of development budget, seeing positive rebound in economic activities after an ease in lockdown.

The SBP said there are some prospects for gradual improvement in economic activity as the government is easing the lockdown while allowing many sectors to resume activities. “This may result in a supply side revival, though agriculture sector outlook is at risk from locust attacks, which can unfavorably impact the ongoing kharif season’s output,” the SBP said in a quarterly state of economy report. “Nonetheless, achieving the target of 2.1 percent growth in real GDP during FY21 will require a parallel improvement in underlying demand. This requires effective utilization of PSDP (public sector development program) as per its allocation in the budget for FY21, while SBP schemes continue to support liquidity needs of both businesses and consumers.” The SBP said high demand for these schemes is indicating the stress faced by economic agents due to COVID-19, whereas, a growing number of approvals is increasing liquidity support that is going to be helpful in containing the pandemic related adverse fallout on supply and demand. The SBP said the economy continued to be faced with high uncertainty owing to the challenges posed by the COVID-19 pandemic on several economic fronts as it moved towards the end of FY20.

The consumer confidence survey of May recorded a sharp deterioration in both consumer confidence and expected economic conditions following their improvement in March. Similarly, the business confidence survey of April registered its lowest historical level for overall business confidence.

On the fiscal front, consolidation achieved earlier in the year reversed as the COVID-19 shock started unfolding. Expenditures increased while revenues saw a sharp decline in their growth during Q4-FY20. Thus, fiscal deficit is estimated to touch 9 percent of GDP for FY20, against 4 percent recorded during July-March FY20.

“As we step into FY21, roll out of the much-needed socioeconomic support package may continue to keep government expenditures high in the coming months,” it said. “However, the gross revenue target of Rs6.57 trillion for FY21 is challenging as it entails significant growth over FY20 in a low economic activity environment.”

The SBP said the government needs to have an efficient debt management policy while ensuring PSDP expenditures as per budget during FY21 as current expenditures, such as interest payments and pensions, are expected to consume major share of the revenues. The inflation outlook is encouraging, although not without risks. Low domestic demand should continue to support a further softening trend in CPI headline inflation and stability in core inflation over the coming months. Inflation is expected to fall in the range of 7-9 percent during FY21. However, recent increase in petrol prices has tilted risks on the higher side of this range. While low global demand may keep international oil prices subdued in the coming months, any agreement for a large cut in oil supply can be another upside risk for both inflation and its future expectations. Similarly, any new locust attacks of high intensity or COVID-19 related supply chain disruptions may hurt food security, resulting in higher inflation.

The SBP said the outlook for the external sector is reasonably comforting, with the current account expected to remain bounded. While higher competition among competing exporters amid recovering global demand in the post-COVID-19 setting may restrict any quick recovery in exports, imports are expected to remain subdued due to low domestic demand and soft international oil prices in the coming months.

“While workers’ remittances may remain low as current disruptions and declining oil prices have strained economies of GCC countries, some cushion in services imports may come from restrictions on international travel,” it said. “However, multilateral inflows may grow further and make up for some weakness in global capital inflows as more funds have been pledged by various international institutions to help governments cope with their pandemic related relief efforts.”