KARACHI: The State Bank of Pakistan (SBP) has lowered its projected GDP growth from the previously announced range of 3-4 per cent for the current fiscal year.
The central bank cited flood-triggered devastation and the stabilisation policy as major factors in it s economic health report.
The central bank The economy was already in a stabilisation phase when widespread flooding hit a large part of the country at the start of the current fiscal year, the central bank said.
The State Bank of Pakistan released today its Annual Report on the State of Pakistan’s Economy for the fiscal year 2021-22. According to the report, Pakistan’s economy achieved a real GDP growth of around 6 percent, for a second consecutive year in FY22. The growth was broad-based as both agriculture and industry saw a notable increase that spilled over to the services sector as well.
However, with the continued reliance on consumption as the source of growth, amid sluggish improvement in productivity, the country remained vulnerable to adverse developments in global economy. Hence, a combination of adverse global and domestic developments led to the reemergence of macroeconomic imbalances during FY22.
The report noted that the expansionary fiscal stance in FY22, an upsurge in global commodity prices, and the fallout of the Russia-Ukraine conflict, led to a marked deterioration in the current account deficit (CAD). In addition, the delay in the resumption of the IMF program and political instability exacerbated the country’s vulnerability through the depletion of FX reserves.
The resulting depreciation in PKR amplified inflationary pressures by magnifying the effect of global price increase.
Fiscal policy support in the shape of tax incentives for industry, export and construction, a large increase in provincial development spending, tax incentives and subsidies to protect consumers from the impact of rising international oil prices, supported the momentum of economic activity. Also, the lagged impact of monetary stimulus rolled out during the pandemic, SBP’s targets for housing and construction, and capacity expansions under Temporary Economic Refinance Facility (TERF) and Long Term Financing Facility (LTFF) continued to underpin GDP growth. In addition, the sustained rally in domestic and global demand and receding concerns about the Covid-pandemic also catalyzed the
momentum of economic activity during FY22.
However, the impact of accommodative policies contributed to higher than planned growth in the economy, and together with the rapid rise in global commodity prices, posed risks to the country’s macroeconomic stability. Particularly, this led to a sizeable increase in the import bill in FY22 that significantly outpaced the expansion in exports and widened the CAD to a four-year high level.
