Since the government has shifted its policy towards economic stabilisation, the 6.2% target for the real GDP growth doesn’t seem achievable in the financial year ending June 30, the State Bank of Pakistan said on Tuesday, releasing its quarterly report on the state of the economy.
“The overall macroeconomic environment remained challenging during the first [July-September] quarter of FY19 as suggested by the preliminary data,” the central bank said. The primary concern was the steep rise in global crude prices, which reinforced strong underlying inflationary pressures in the economy, it said.
The report also said that the government’s consolidated revenues grew by 7.5% but it was lower than the 18.9% uptick of the comparable period of the previous year. Expenditures grew by 11% during the quarter compared to 13.5% of the corresponding period.
“The resultant higher fiscal deficit was financed through increased government borrowing from both domestic and external sources,” the report said. These fiscal pressures allowed only limited room for the government to maneuver, therefore, the new political regime immediately announced cuts in development spending, partially reversed tax relief measures, and also explored avenues to bridge the external financing gap, it said.
Referring to the external account (dollars coming in vs dollars going out of Pakistan), the report said continued exports growth and a steady increase in workers’ remittances partially helped contain the current account deficit. However, the level of this deficit remained a concern as rising oil prices resulted in the quarterly import bill crossing the $4 billion mark, it said.
Foreign investments declined and external (dollar) borrowing by the private sector remained subdued. As a result, pressure on the balance of payments continued to mount with the country’s foreign exchange reserves declining by $1.4 billion and the rupee depreciating by 2.2% during the quarter. The situation will improve going forward as more dollar inflows are expected, which will shore up our foreign exchange reserves and ease the pressure on the rupee.
The central bank also explained it’s recent policies were in response to this twin loss (fiscal and external deficits).
To revert to a stable macroeconomic environment over the medium term, the report underlines the importance of the continuation of the right mix of polices. The report lays particular emphasis on initiating the needed structural reforms in order to push the country’s productivity frontier and take the growth momentum forward.