KARACHI: Pakistan’s central bank on Thursday made an upward revision to the country’s real economic growth forecast for the outgoing fiscal year while urging policymakers to monitor debt servicing, inflation and emerging import pressure to keep the economy on track.
“It is likely that real Gross Domestic Product [GDP] growth will exceed the target of 2.1 percent, and the SBP [State Bank of Pakistan] has revised its real GDP forecast for FY21 upwards to 2.0-3.0 percent from the earlier range of 1.5-2.0 percent,” the bank said in its second quarterly report on Pakistan’s economy released earlier today.
The revised rate is based on positive economic trends in the manufacturing sector, effective control of the third wave of the coronavirus pandemic in Pakistan and expected increase in wheat production, according to the central bank.
Last month, Pakistan’s nominal GDP was estimated at 3.94 percent by the National Accounts Committee for the current fiscal year due to better output in the agricultural, industrial and services sectors.
“Further impetus to the current economic momentum could come from a successful rollout of vaccines in the coming months,” the report said, adding that business confidence had also been improving and “the resumption of the IMF program is expected to unlock additional external financing and also support the country’s progress on the structural reform agenda.”
After highlighting the positive factors, the report flagged three areas that needed continuous vigilance from policymakers.
“First is the burden of debt servicing,” it said. “Despite relative improvement in revenue generation, the bulk of interest payments during H1-FY21 was financed via the issuance of new debt. This indicates the need to expand the revenue base, notably by accelerating the ongoing documentation drive and plugging leakages in tax collection.”
The central bank also emphasized it was important to monitor inflation in the Consumer Price Index which declined during the first half of the outgoing fiscal year on year-on-year basis and stayed within the SBP's projected range throughout the year.
“The SBP’s full-year CPI inflation projection is unchanged, in the range of 7-9 percent,” the report continued. “The main upside risk to this assessment would come from a substantial increase in international commodity prices.”
“Deepening in any domestic supply-side challenges for food items or utility tariff hikes may also lead to higher inflation outturns,” it added.
The SBP also warned of import pressure build-up.
“With the domestic economic activity recovering and global commodity prices rising, import pressures are resurfacing,” it noted. “These pressures have been accentuated by the domestic supply-side challenges for major agricultural commodities. Shortfall of agricultural commodities in the domestic market, such as cotton, sugar and wheat, have necessitated their imports and pushed up the overall import payments.”
The central bank, however, acknowledged that the surge in workers’ remittances had been offsetting the impact of these payments, as export receipts were still lower than last year.
