‘Silicon Saxony’ stands on foundations

KARACHI: The State Bank of Pakistan (SBP) has called for launching an industrial policy to kick-start the economy and reverse the strong downward trend reported since the last fiscal year.The recently published annual report of the central bank paints a dismal picture of the economy as real gross domestic product (GDP) growth, private-sector credit and CPI inflation have been adversely impacted. The real GDP growth and private-sector credit growth have been the lowest since FY16 while inflation is at the highest level.
On the other hand, the reduction in growth may have helped improve the current account deficit as the demand for imports fell. However, the fiscal deficit and the gross public debt have increased.
The SBP clearly indicates that the economy experienced ‘marked adjustments’ as the exchange rate was realigned to market fundamentals, interest rates were increased, Public Sector Development Programme (PSDP) was curtailed and energy prices were increased. The purpose of the adjustments was to control the fiscal and current account deficits. Unfortunately, in an economy primarily driven by consumption, its compression is set to have an adverse impact on growth.
Although the economic conditions are gloomy, the foreign reserves of the SBP are likely to increase as Pakistan receives loan tranches from the International Monetary Fund (IMF). Furthermore, the exchange rate between the US dollar and Pakistani rupee has stabilised around 156 since early September 2019 and fluctuations in the exchange rate are likely to be less common.
The Pakistan Bureau of Statistics (PBS) reports that exports in US dollar terms improved in September 2019 by 2.67% compared to the value reported in September 2018. Cumulative exports in the first three months of FY20 increased 2.75% compared to the same period in FY19. Similarly, imports decreased in September 2019 by 13.90% compared to imports in September 2018. Imports fell 20.59% in the first three months of FY20 relative to the same period of previous fiscal year.
The trade deficit in the first three months of FY20 contracted 34.85% relative to the same period in FY19. The fall in the trade deficit has a crucial role in reduction in the current account deficit.

Leave a Reply

Your email address will not be published. Required fields are marked *

scroll to top