AVN 65.20 Increased By ▲ 0.25 (0.38%)
BAFL 30.74 Decreased By ▼ -0.77 (-2.44%)
BOP 4.80 Increased By ▲ 0.01 (0.21%)
CNERGY 3.71 Decreased By ▼ -0.13 (-3.39%)
DFML 14.21 Decreased By ▼ -0.20 (-1.39%)
DGKC 41.05 Decreased By ▼ -0.55 (-1.32%)
EPCL 46.45 Decreased By ▼ -0.25 (-0.54%)
FCCL 11.40 Increased By ▲ 0.11 (0.97%)
FFL 5.05 No Change ▼ 0.00 (0%)
FLYNG 5.80 Decreased By ▼ -0.02 (-0.34%)
GGL 10.33 Decreased By ▼ -0.12 (-1.15%)
HUBC 66.87 Increased By ▲ 1.23 (1.87%)
HUMNL 5.71 Increased By ▲ 0.05 (0.88%)
KAPCO 27.76 Increased By ▲ 0.01 (0.04%)
KEL 2.20 Increased By ▲ 0.05 (2.33%)
LOTCHEM 24.90 Increased By ▲ 0.55 (2.26%)
MLCF 21.44 Decreased By ▼ -0.04 (-0.19%)
NETSOL 83.60 Decreased By ▼ -1.19 (-1.4%)
OGDC 85.90 Decreased By ▼ -1.35 (-1.55%)
PAEL 11.01 Increased By ▲ 0.03 (0.27%)
PIBTL 4.22 No Change ▼ 0.00 (0%)
PPL 74.48 Decreased By ▼ -1.22 (-1.61%)
PRL 13.43 Decreased By ▼ -0.22 (-1.61%)
SILK 0.92 Increased By ▲ 0.03 (3.37%)
SNGP 40.40 Decreased By ▼ -0.93 (-2.25%)
TELE 5.86 Increased By ▲ 0.01 (0.17%)
TPLP 15.40 Decreased By ▼ -0.24 (-1.53%)
TRG 111.41 Decreased By ▼ -0.29 (-0.26%)
UNITY 13.75 Decreased By ▼ -0.23 (-1.65%)
WTL 1.14 Decreased By ▼ -0.02 (-1.72%)
BR100 4,037 Decreased By -26.9 (-0.66%)
BR30 14,412 Decreased By -56.6 (-0.39%)
KSE100 40,471 Decreased By -262.4 (-0.64%)
KSE30 15,163 Decreased By -67.2 (-0.44%)
Business & Finance

SBP touts Pakistan’s economic recovery, cautions govt over interest payments

  • Central bank hails pickup in industrial activity, but flags some areas of concerns
Published June 3, 2021
Follow us

Karachi: Pakistan’s economic recovery that became visible in the first quarter of the outgoing fiscal year strengthened in the next three months, stated the ‘Second Quarterly Report on The State of Pakistan’s Economy’ released on Thursday by the country’s central bank.

However, the State Bank of Pakistan (SBP) report also highlighted some areas of concerns including public debt management, inflationary and import bill pressures. It also pointed towards the growing pace of industrial activity, promising output of major Kharif crops (with the exception of cotton), and a pick-up in the services sector during the review period.

The report covered the period between January and March of 2021, and gives a favourable view of economic activity as Pakistan battled the pandemic.

“The pick-up in economic activity was also reflected in the services sector indicators and a steady improvement in business confidence. At the same time, headline inflation moderated during the period,” read the SBP report.

“These favorable economic outcomes were facilitated by the continuation of the liquidity support measures introduced after the Covid-19 outbreak, as well as by the introduction of supportive sector-specific policies in H1-FY21,” it added.

The report said that large-scale manufacturing (LSM) grew by 7.6 percent during 1HFY21, with its growth in the second quarter accelerating to 10.4 percent, the highest quarterly LSM growth since Q4-FY07.

“Construction-allied and food processing industries generated much of the momentum in industrial activity. The construction industry benefited from the favourable policy environment, which included the government’s fiscal incentives under the construction support package, the Naya Pakistan Housing Scheme, as well as financial measures from the State Bank.”

Within agriculture, most of the major Kharif crops performed better than last year; this improvement was attributed mainly to increases in their areas under cultivation. The government’s support package for Rabi crops, comprising subsidies on key inputs, and an increase in the support price for wheat, are likely to bolster the overall crop sector growth, said SBP report. However, cotton exerted a drag on the overall agricultural performance, as the revised production estimate of 7.7 million bales represented the lowest output since FY86. Nonetheless, due to better output of other crops, the overall agriculture sector is expected to register positive growth.

As economic momentum picked up and the country successfully navigated the second wave of Covid without resorting to strict mobility restrictions, firms’ demand for credit nearly doubled on YoY basis during 1HFY21. “Specifically, the approved financing under the TERF scheme reached Rs 435.7 billion as of 31st March, 2021. House building loans also increased, after SBP set the mandatory target for banks to increase their housing and construction loans to 5 percent of their overall private sector credit portfolios by end-December 2021.”

In the external sector, the current account posted a surplus of $ 1.1 billion during 1HFY21, driven by record-high workers’ remittances and reductions in the services and primary income deficits.

With the current account in surplus and sufficient external financing available, the SBP’s foreign exchange reserves increased by $ 1.3 billion and its net forward liabilities also reduced by $ 1.2 billion during 1HFY21. Moreover, the rupee appreciated by 5.1 percent against the US Dollar during the period.

Areas of concern

Notwithstanding these positive developments, the report flagged three areas of concern.

“Challenges with respect to public debt management have deepened,” said the report. “Interest payments are now consuming nearly half of the federal revenues and comprise around 53 percent of federal current expenditures

“Also, the rollout of new debt instruments on flexible mark-up has increased the repricing risk for the government. In this context, the government should now recalibrate its policy mix and devise a workable short- and medium-term strategy with well-defined timelines.”

Second, while national CPI inflation declined during 1HFY21 on YoY basis and stayed within the SBP’s projection for the full year, the prices of food items remain vulnerable to supply-side pressures in recent months.

"Third, with the domestic economic activity recovering and global commodity prices rising, import pressures are resurfacing. Moreover, these pressures have been accentuated by the domestic supply-side challenges for major agricultural commodities – cotton, sugar and wheat – which necessitated their imports," stated the report.

Comments

Comments are closed.

SBP touts Pakistan’s economic recovery, cautions govt over interest payments

PM Shehbaz says IMF giving Pakistan tough time over unlocking loan

Roshan Digital Accounts: inflow clocks in at meagre $110mn in January

Imran Khan decides against contesting by-elections on 33 NA seats

Cotton arrival plunges 36% year-on-year

2 terrorists killed in North Waziristan: ISPR

KSE-100 retreats 0.64% as rupee falls further

China expected to boost global growth but uncertainties remain: IMF

Sindh Police registers FIR against Sheikh Rashid over ‘foul language against FM Bilawal’

India’s Adani denies rise due to Modi as shares slump again

Indian police arrest 1,800 men in crackdown on underage marriage