Pakistan’s economic outlook improves
Further fiscal consolidation and structural reforms needed, says IIF
Pakistan’s economy has remained largely resilient to Covid-19 with policy response to the pandemic limiting economic contraction. The country is poised for a 4 per cent GDP growth in the financial year 2021-22, according to the Institute of International Finance (IIF).
“The authorities have deployed a comprehensive set of policy responses that have helped to limit contraction in real GDP to 0.5 per cent in 2019-20,” said Garbis Iradian, Chief Economist, Mena, IIF. “The crisis-mitigating measures included emergency health spending, a food security programme, temporary tax deferrals, subsidised loans to households, and deferrals of loan payments.”
According to the IIF’s estimates GDP growth will remain around 4 per cent 2021-22 supported by an accommodative monetary policy and a significant increase in public investment. Preliminary estimates show a strong recovery in financial year 2021 (ending June), with growth of 3.9 per cent, driven by the recovery in manufacturing and services.
Inflationary pressures ease
Monetary policy remains accommodative as inflationary pressures have eased. The policy rate remained unchanged at 7 per cent from July 2020 to August 2021 and supported the recovery. Urban core inflation remained broadly stable at 6.9 per cent in July 2021 as compared with headline inflation of 8.7 per cent, which was driven by the upward adjustment in electricity tariffs in the context of higher global oil prices.
The State Bank of Pakistan (SBP) noted that the recent price pressures were “largely supply-driven and transient” and expects average CPI inflation to decline to slightly below 8 per cent in 2021-22 as compared with 10.7 per cent in 2019-20.