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SBP report on state of economy

SBP report on state of economy

In its second quarter report on the state of economy, the State Bank of Pakistan expects the real GDP growth will surpass the last year’s growth rate of 5.3 percent but will fall short of achieving the target of 6 percent. The growth of the large-scale manufacturing decelerated just to 1.6 percent of the GDP in the second quarter of the fiscal year 2018-19 compared to 9.9 percent growth in the first quarter. However, the six month growth is four-year high with low inflation during the first half of the fiscal year. The growth is pushed by rising demand from consumer and construction sectors which invigorated the manufacturing sector to work with full capacity. Despite an improvement in revenue growth, the overall fiscal deficit will exceed the target for the current fiscal year. The fiscal deficit was contained during the first half of the fiscal year 2018-19 at 2.2 percent of the GDP, down from last year’s 2.5 percent. Apart from the large scale manufacturing sector, the bank pins hope on the agriculture sector. However, there is fear that wheat production would come under pressure due to non-availability of water, and a reduction in area under cultivation as compared to the last year. The cotton production is also expected to experience a shortfall of 2.5 million bales.

In the wake of rising volume of current account deficit as well as fast maturing loans, the government will have to ensure that estimated inflow of revenues are realized during the year. Pakistan desperately needs measures to earn foreign exchange as trade deficit has increased pressure on the local currency. Though the State Bank sees positive signs in the devaluation of the Pakistani rupee, but in fact it has shook the entire financial system of the country. As the loans are heading toward maturity, debt servicing will challenge the ability and capacity of the government in the near future. The government gives much importance to revenue collection, but unreasonable and irrational pressure on trade and industry suppresses the growth rate. The authorities remain concerned about meeting the targets without devising any revenue collection system. The hard earned money is often spent or lost in non-development projects. With depreciation of rupee, it will be difficult to control inflation though the government expects it will remain within limits amid fiscal consolidated on the back of a rebound in revenue collection.