Pakistan Central Bank Statement

Author: | Published: 5 Sep 2017
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Prudent monetary and fiscal policies coupled with improvement in the security situation and energy supplies have turned things around for Pakistan's economy, which has come out of the high inflation-low growth trap of over five years (2009-2014). A policy aimed at fiscal consolidation through increasing taxes and without compromising on essential development expenditure has positively reflected on the overall economy. It has supported the monetary policy in combating high inflation of the last few years.

Similarly, reforms related to the financial sector, such as those for further strengthening central bank independence, have supported the economic recovery process and added on to the credibility of important state institutions. As a result, macroeconomic resilience has improved and short-term vulnerabilities have receded. Accumulation of foreign exchange reserves gathered pace, inflation declined to multi-year low level of 2.9% at the end of financial year 2016 and the economy grew in excess of 4% in the last three years, touching a 10-year high of 5.3% in 2017.

At present, the macroeconomic environment is conducive to economic growth with higher development spending and various incentives for businesses. Concurrently, while maintaining the positive real rate of return, the State Bank of Pakistan's monetary policy stance has resulted in the decline of weighted average lending rates. This, coupled with growing opportunities, has led to a considerable uptick in both fixed investment and working capital loans in the current financial year.

The rising pace of China Pakistan Economic Corridor (CPEC)-related investments is projected to accelerate real GDP growth. Healthier production of major crops has led to the recovery of growth in the agriculture sector. Improvement in energy supply is resulting in enhanced manufacturing activities that are important to sustain the growth of a large-scale manufacturing sector. Current trend in imports, higher production and sale of commercial vehicles and flourishing housing schemes all suggest a growing services sector as well.

Both business and consumer sentiments are improving while inflation expectations remain well-anchored. Domestic output is expected to match rising demand in the future as the government is committed to complete most of the power and infrastructure projects soon. Also, the recently announced export package and substantial credit extension for fixed investment are adding to further investment in machinery and capital goods. Accordingly, manufacturing and exports are expected to increase. Both the upgraded country ratings by international agencies and the overall improvement in the security situation are going to reduce the risk premium and encourage foreign private inflows for investment.

Thus, in the medium term, Pakistan's economy is poised to maintain a meaningful recovery in real growth.

 


 

 

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