Pakistan expects higher foreign inflows during current fiscal year — State Bank

KARACHI: Pakistan hopes to receive higher foreign exchange inflows during the remaining half of current fiscal year FY19 ending on June 30, which would reduce country’s current account deficit and ease pressure on balance of payment situation, the State Bank of Pakistan (SBP) said in a report issued Tuesday. 
“Financing of the current account might improve going forward as there is an expectation of receiving higher foreign exchange inflows from both private and official sources during the second half of FY19,” the SBP first quarterly 1Q report 2018-2019 on the state of the economy read.
Recent bilateral arrangements, including the deferred oil payments facility would not only bolster the country’s foreign exchange reserves, but also ease pressures in the domestic foreign exchange market, said the report. 
A right mix of policies and sufficient balance of payment (BoP) support would help the country revert to a stable macroeconomic environment over the medium term, the central bank hoped.
According to the SBP, the overall macroeconomic environment remained challenging during the first quarter of FY19. “The primary concern was the steep rise in global crude oil prices, which not only reinforced the already strong underlying inflationary pressures in the economy, but also eclipsed emerging improvements in the external sector,” the SBP said adding that “fiscal pressures also remained intact as expenditure rigidities allowed only a limited room for the government to maneuver.” 
Responding to these challenges, the new political regime immediately announced cuts in development spending, partially reversed tax relief measures, and also explored avenues to bridge the external financing gap.
“The 6.2 percent target for real GDP growth seems unachievable with the policy focus now tilted toward macroeconomic stabilization,” SBP observed. The central bank’s real GDP growth forecast for the FY19 is 4-4.5 percent. 
The production of all major kharif crops remained lower as compared to last season while the large-scale manufacturing also contracted by 1.7 percent during Q1-FY19, after recording a healthy growth of 9.9 percent during Q1-FY18. 
The report highlighted that with the underlying inflationary pressures remaining strong and the twin deficits staying at elevated levels, the monetary policy continued to move along the adjustment path. 
On the external front, the report highlighted that the continued exports growth and a steady increase in workers’ remittances partially helped contain the current account deficit. However, the level of this deficit remained a concern, as rising oil prices resulted in the quarterly import bill crossing $4 billion mark.
However, the bearish spell in global crude oil market that began in early October 2018 and ran through the rest of Q2-FY19 and reached a year-low level of $54 per barrel will lift some pressure from Pakistan’s oil import bill.
Going forward amidst weakening domestic economic activity, exchange rate depreciation and increase in import duties, the exports may gain from exchange rate depreciation and increase in consumer spending in the advanced economies, but their momentum could possibly be weakened by rising cost pressures, the report says.
The estimates for overall foreign exchange earnings are on the higher side, as workers’ remittances are projected to sustain a high growth. Resultantly, the overall current account deficit is expected to narrow down to 4.5 to 5.5 percent of the GDP, from 6.1 percent in FY18, according to the report.
The report lays particular emphasis on initiating the needed structural reforms in order to push the country’s productivity frontier and take the growth momentum forward.