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KARACHI: Pakistan is likely to miss the GDP growth target of 5.5 percent, State Bank of Pakistan (SBP) has said in its annual report of the outgoing financial year.
The macro environment of the current financial year, 2015-16, appears positive, with stable outlook of external account. Inflation is expected to remain below target, fiscal account would be in good shape and global commodity prices are likely to remain soft. The SBP report said that the GDP growth rate of the current financial year will settle between 4 to 5 percent, whereas the inflation rate will conclude below the target of 6 percent between 3.5 to 4.5 percent. The deficit of fiscal and trade is likely to achieve the target of 4.3 percent and 1 percent of the GDP but it might touch the level of 5 percent and 1.5 percent of GDP.
In the current financial the import bill is projected to reach $40 to $41 billion. Moreover, the inflows of remittances are projected to touch the $20 billion level, which is above the target of $19 billion for the current year. The major risk to overall GDP growth stems from agriculture sector where some damages to cotton crop from the recent rains and floods have been reported. In addition, the continuing depressed prices may discourage growers from increasing their spending on better quality inputs. The CPI inflation for FY16 on the other hand is likely to remain below the target of 6.0 percent for the year.
The downside risk to outlook comes from steeper than expected slowdown in Chinese economy, which may put further downward pressure on global commodity prices. However, unlike advanced economies (particularly the euro area countries) where deflation has emerged as a challenging economic problem, that does not drive CPI inflation in Pakistan to fall below zero percent. The report stated that the country can also benefit from developments such as policy rate has been reduced to a 42-year low and the improved security situation due to campaign against terrorism.
While better security is improving the country’s image as an attractive investment destination, the benefit would spread to other sectors of the economy mainly to China-Pakistan Economic Corridor (CPEC) that offers a unique opportunity to fix our chronic problems in infrastructure and energy sector. In addition, the membership of Shanghai Cooperation Organisation would provide Pakistan an easy access to a large market for its exports, and attract investments in the energy and infrastructure sector.
The US deal with Iran, will open up the Iranian market to many countries. With Iran’s reintegration with the global economy, Pakistan can focus on this market to improve trade, and meet energy needs. The government has set a GDP growth target of 5.5 percent for FY16, with all sectors (viz. agriculture, industry, and services) expected to grow at a higher rate than FY15. According to Annual Plan FY16, the likely investments in energy and infrastructure projects under CPEC would not only bolster industrial growth, but its spillover impact on transport, storage and communication sub-sector would also support growth in the services sector.
The outlook of the external sector appears comfortable, as exports are expected to benefit from the recent weakening of the rupee; a decline in policy rate; and several measures taken by the government to boost exports. Imports are also likely to stay low if oil prices remain depressed. The only difficulty comes from a possible slowdown in infrastructure spending in the Gulf at the back of depressed oil prices, which may hold back remittance growth in Pakistan. In terms of the fiscal deficit, the government is targeting to lower this by one percentage point to 4.3 percent in FY16.
Pakistan likely to miss GDP growth target: SBP
The macro environment of the current financial year, 2015-16, appears positive, with stable outlook of external account. Inflation is expected to remain below target, fiscal account would be in good shape and global commodity prices are likely to remain soft. The SBP report said that the GDP growth rate of the current financial year will settle between 4 to 5 percent, whereas the inflation rate will conclude below the target of 6 percent between 3.5 to 4.5 percent. The deficit of fiscal and trade is likely to achieve the target of 4.3 percent and 1 percent of the GDP but it might touch the level of 5 percent and 1.5 percent of GDP.
In the current financial the import bill is projected to reach $40 to $41 billion. Moreover, the inflows of remittances are projected to touch the $20 billion level, which is above the target of $19 billion for the current year. The major risk to overall GDP growth stems from agriculture sector where some damages to cotton crop from the recent rains and floods have been reported. In addition, the continuing depressed prices may discourage growers from increasing their spending on better quality inputs. The CPI inflation for FY16 on the other hand is likely to remain below the target of 6.0 percent for the year.
The downside risk to outlook comes from steeper than expected slowdown in Chinese economy, which may put further downward pressure on global commodity prices. However, unlike advanced economies (particularly the euro area countries) where deflation has emerged as a challenging economic problem, that does not drive CPI inflation in Pakistan to fall below zero percent. The report stated that the country can also benefit from developments such as policy rate has been reduced to a 42-year low and the improved security situation due to campaign against terrorism.
While better security is improving the country’s image as an attractive investment destination, the benefit would spread to other sectors of the economy mainly to China-Pakistan Economic Corridor (CPEC) that offers a unique opportunity to fix our chronic problems in infrastructure and energy sector. In addition, the membership of Shanghai Cooperation Organisation would provide Pakistan an easy access to a large market for its exports, and attract investments in the energy and infrastructure sector.
The US deal with Iran, will open up the Iranian market to many countries. With Iran’s reintegration with the global economy, Pakistan can focus on this market to improve trade, and meet energy needs. The government has set a GDP growth target of 5.5 percent for FY16, with all sectors (viz. agriculture, industry, and services) expected to grow at a higher rate than FY15. According to Annual Plan FY16, the likely investments in energy and infrastructure projects under CPEC would not only bolster industrial growth, but its spillover impact on transport, storage and communication sub-sector would also support growth in the services sector.
The outlook of the external sector appears comfortable, as exports are expected to benefit from the recent weakening of the rupee; a decline in policy rate; and several measures taken by the government to boost exports. Imports are also likely to stay low if oil prices remain depressed. The only difficulty comes from a possible slowdown in infrastructure spending in the Gulf at the back of depressed oil prices, which may hold back remittance growth in Pakistan. In terms of the fiscal deficit, the government is targeting to lower this by one percentage point to 4.3 percent in FY16.
Pakistan likely to miss GDP growth target: SBP
