Pak­istan econ­omy to grow in 2016 de­spite chal­lenges

The Pak Banker - - BUSINESS -

Im­ple­men­ta­tion of China Pak­istan Eco­nomic Cor­ri­dor, or CPEC, ris­ing large scale man­u­fac­tur­ing and the up­com­ing in­fra­struc­ture projects in the West-Cen­tral Asia Zone are some of the strong busi­ness in­di­ca­tors that cen­tral bank has out­lined as fac­tors, which will boost Pak­istan's econ­omy in 2016.

Over­all there is good news and hope of good prospects. But, State Bank of Pak­istan, or SBP, also in­di­cates sev­eral chal­lenges, which must be tack­led. It said: "Some im­prove­ments are al­ready vis­i­ble from the changes in the key macroe­co­nomic in­di­ca­tors. Eco­nomic ac­tiv­ity seems to be gear­ing up as large sale man­u­fac­tur­ing, or LSM, has recorded a no­tice­able in­crease over the last year."

LSM out­put growth rose to 3.9 per cent in the first quar­ter of fis­cal year 2016 from 2.6 per cent in like pe­riod of FY-2015. The growth of the econ­omy was con­firmed by "the strong prof­itabil­ity of the bank­ing sec­tor", in spite of the cur­rently de­clin­ing in­ter­est rates and their re­duced spreads. The in­ter­est rate de­cline is push­ing the pri­vate busi­ness greatly. A "vis­i­ble im­prove­ment in the trans­port sec­tor, stor­age and com- mu­ni­ca­tions are key pos­i­tives."

The SBP also un­veiled on­go­ing and up­com­ing chal­lenges in its re­view of the econ­omy in the first quar­ter (July-Septem­ber) of FY-2016. The SBP's re­port "State of the Econ­omy" in­di­cated the sec­tors, which are per­form­ing well. It said that a large num­ber of projects will also ben­e­fit "due to the progress in im­ple­men­ta­tion of the CPEC projects. Some of them are al­ready un­der way. They in­clude con­struc­tion of the Gwadar Port- re­lated projects in South-West Pak­istan, on Ara­bian Sea and Straits of Hor­muz.

Some two dozen huge in­dus­trial ar­eas have been marked down to es­tab­lish in­dus­tries, bank­ing, en­ergy and ser­vice projects to be loaced from Gwadar to China as part of the CPEC. The first phase of CPEC with an in­vest­ment of $46 bil­lion is slated to be com­pleted by end-De­cem­ber 2017 or early 2018, Ah­san Iqbal, Min­is­ter for Plan­ning said. The SBP also re­ported that the econ­omy is likely to ben­e­fit from im­prove­ment in the se­cu­rity con­di­tions and suc­cess­ful and con­tin­ued fight against ter­ror­ism, bet­ter avail­abil­ity of elec­tric­ity and gas, lower cost of im­ported in­du­sial raw ma­te­ri­als and the his- toric low in­ter­est rates. The in­ter­est rates were low­ered to around six per cent for the pri­vate sec­tor un­der SBP's easy mon­e­tary pol­icy. The pol­icy slashed the in­ter­ests rates, charged by the com­mer­cial banks, to an 11-year low of six per cent. But it dos not mean "all is well."

The re­port said, no­table im­prove­ments in the key macroe­co­nomic in­di­ca­tors have been ob­served dur­ing the first quar­ter of FY-2016, how­ever, much needs to be done to en­sure their sus­tain­abil­ity. "The cur­rent SBP pro­jec­tion is that a GDP of 4.5 to five per cent is likely to be achieved in FY2016," rather than 4.5 to 5.5 per cent en­vis­aged by the govern­ment. Both im­ports and ex­ports posted a de­cline. The fall in im­post was more pro­nounced, which re­duced the trade deficit by 22.4 per cent dur­ing the quar­ter, to­gether with a mod­est in­crease in re­mit­tances sent by Pak­ista­nis work­ing abroad and in­flow of US funds to fight in­ter­na­tional ter­ror­ism.

Th­ese in­flows nar­rowed the cur­rent ac­count deficit to only $35 mil­lion, as against $1.6 bil­lion in the like pe­riod of fis­cal year 2015. The to­tal forex re­serves rose by $14 bil­lion to reach "an all time high of $20.1 bil­lion. At the same times SBP recorded a 2.6 per cent de­pre­ci­a­tion in the value of ru­pee against the US dol­lar. The SBP said: "The ru­pee-dol­lar ex­change rate, which an­chors in­fla­tion ex­pec­ta­tions of busi­ness com­mu­nity and di­rectly im­pacts do­mes­tic prices, has cre­ated an up­ward pres­sure on in­fla­tion. How­ever, this im­pact was more than off­set by the swift pass through of a fall in the in­ter­na­tional com­mod­ity prices to the do­mes­tic con­sumers dur­ing the quar­ter."

The SBP re­port noted a marked im­prove­ment in the se­cu­rity con­di­tions, bet­ter en­ergy man­age­ment, and the per­sis­tently low global com­mod­ity prices, "the govern­ment had en­vis­aged GDP growth of 5.5 per cent for FY-2016 an­tic­i­pat­ing bet­ter per­for­mance in all three eco­nomic sec­tors com­pared with last year as sum­mer crops in­curred losses due to de­pressed prices of agri­cul­tural prod­ucts and un­fa­vor­able weather con­di­tions." "How­ever, ini­tial as­sess­ment sug­gests that achiev­ing 5.5 per cent GDP tar­get will be chal­leng­ing." SBP pro­jected the con­sumer price in­dex, or CPI, in the range of 3.5 to 4.5 per cent, vis­i­bly lower than the in­fla­tion tar­get of six per cent, down from eight per cent in the like pe­riod of FY-2015. This is based on CPI sur­vey con­ducted in Novem­ber 2015.

Large scale man­u­fac­tur­ing out­put in Pak­istan rose to 3.9 per cent in the first quar­ter of fis­cal year 2016.

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