Macroeconomic outlook appears stable

The State Bank of Pakistan (SBP) said on Thursday that despite challenging global economic conditions, Pakistan''s overall macroeconomic outlook appears stable and growth is likely to pick up despite the constraints. The SBP in its second quarterly report "The State of Pakistan Economy" for FY16 said the country''s fiscal position is strong, inflation is likely to stay low and risks on the external front have been moderated to a large extent.
The SBP expected that GDP growth during FY16 to be higher than the last year. As per SBP projection GDP growth will be between 4 to 5 percent end of FY16 slightly less than target of 5.5 percent and higher than 4.2 percent achieved in FY15. Fiscal deficit will be 4-5 percent as against 5.3 percent in FY16.
The report said that SBP has accumulated a significant amount of liquid foreign exchange reserves over the past couple of years by purchasing from the interbank, as well as government mobilisation of external loans. In fact, the rise in reserves as percent of external debt and liabilities basically suggests that SBP''s reserves have increased more than the increase in external debt. More importantly, SBP''s reserves at their current level can comfortably finance twice as much payment (gross) as are expected for the next 12 months.
The SBP do not see major risks on the inflation front in short-term as on the one hand, global commodity prices are not expected to recover anytime soon and on the other, a stable PKR is likely to keep inflation expectations further at bay. The improvement in fiscal position is likely to be maintained in the second half of the year, while tax measures announced in October 2015 would continue to help Federal Board of Revenue''s collection. In addition, expenditures are expected to remain within target.
As more projects are expected to materialise under the China-Pakistan Economic Corridor (CPEC), the industrial sector will continue to get push from the upbeat construction and power sectors and the increase in private credit off take also bodes well for the industrial sector performance.
"We are optimistic on the industrial sector''s performance, but cannot firmly assess the final outcomes in agriculture and services," the report said and added that major crops suffered due to low cotton production, but the overall agriculture growth would depend upon performances of livestock and minor crops. According to report services growth hinges upon the contribution of wholesale and retail trade and the outlook for services is tightly balanced between an expected growth in transport, storage and communication, and a relatively modest performance of finance and insurance during the year.