KARACHI: The State Bank of Pakistan (SBP) expects the country’s GDP growth to stay within the range of 1.5-2.5 percent during the current fiscal year, ie, FY21.
Nonetheless, these growth projections are subject to risks, including from the evolution of Covid-19, extreme weather conditions, external demand, and progress on the reform front, the SBP said in its annual report (The State of Pakistan’s Economy) 2019-20 issued Wednesday.
The government has set the GDP growth target at 2.1 percent for FY21.
The SBP said this year-on-year improvement is expected to come from a steady performance of agriculture and a recovery in the services sector, especially finance and insurance, and transport and communications. Industrial performance is also estimated to post a modest recovery, primarily on account of a much contained contraction in large-scale manufacturing as compared to FY20.
In particular, earlier estimates for Kharif crops (especially cotton) do not seem promising, given weaknesses in farmers’ financial condition and heavy rains causing losses to standing crops. There are also some upside risks, especially in the context of resurgence in business confidence in the country following the ease in lockdowns and falling Covid cases. The August wave of the IBA-SBP confidence surveys suggests that the business confidence index not only posted a sharp surge compared to the previous two waves, but it has also come in positive territory after remaining in the negative zone for three consecutive waves. The improvement in the expected business confidence index (a subcomponent of the overall business confidence index) was more pronounced, as it touched its second-highest level since the start of this survey. Importantly, this optimism has also begun to reflect in planned investment activity in the country.
Funding requests under the SBP’s Temporary Economic Refinance Facility (TERF) have risen sharply in recent weeks. The scheme, which provides subsidized financing to businesses undertaking capex or BMR, has so far attracted 338 projects. These developments, along with optimism in the housing and construction sectors, could help accelerate the economy’s recovery process in FY21.
Given the fact that the TERF is geared towards supporting investment activities in the country, the uptick in its utilization is encouraging from a structural viewpoint as well. Pakistan has historically been a consumption-oriented economy, which resulted in unsustainable growth spurts and investment rates not only remaining lower than most EMDEs, but also declining in absolute terms over the past few decades. In this regard, a strong response to incentive schemes such as TERF bodes well for the future economic trajectory, as capital formation activities would help enhance and potentially diversify the output capacity of Pakistan going forward.
Copyright Business Recorder, 2020
Comments
Comments are closed for this article.