ANALYSIS
Despite political skirmishing, strong growth rates are projected in the near to mid term on the back of larger foreign direct investment inflows, rising economic indicators and larger industrial output.
Based on these economic facts, a helpful weak inflation and faster growth of large scale manufacturing, the State Bank of Pakistan (SBP) has decided to retain the benchmark interest rate at 5.75 per cent over the next two months.
“Following detailed deliberations, the Monetary Policy Committee, has decided to maintain the interest rate at 5.75 per cent,” the SBP statement said. “The prospects of achieving the six per cent target of the real GDP growth continues to be strong,” it says.
Besides Pakistanis, this is good news for a large number of international businessmen engaged in foreign trade with Pakistan and foreign investors who have already invested in the country, or are planning to do so. The cheer follows some dismay shown and projected by analysts who had thought that the August 1 change in the government from former leader Nawaz Sharif to his party-man Prime Minister Shahid Khaqan Abbasi may slow down the economic decision-making process appears to be unfounded. The SBP had set the 5.75 per cent interest rate in May 2016.
Output of the large-scale manufacturing sector in the JulySeptember quarter of FY-18 surpassed the earlier expectations as it was recorded at 8.4 per cent, compared to 1.8 per cent in the same quarter of FY-17, the SBP said.
This rise is explained by improved secure conditions and power supply, and transformation of the fixed investment into enhancement of productive capacity on the ground. Further support comes from the continuation of China-Pakistan Economic Corridor (CPEC) projects. Of the $61 billion CPEC projects, half of them are being implemented on a fasttrack basis in the last three years.
The decision to retain the rate at 5.75 per cent was taken by the Monetary Policy Committee meeting, which was chaired by Riaz Riazuddin, deputy governor of the SBP.
The committee said the growth of economic activity in the country is strong, as corroborated by the broad-based pick-up in industrial output, gains in the factors supporting production of major farm crops and the growth in the private sector bank credit. This implies that the prospects of achieving six per cent real GDP growth continue to be strong.
“The inflation rate in 2017-18 is expected to remain below the The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper’s policy.