Daily Times

KARACHI: The State Bank of Pakistan (SBP) on Friday said that the real Gross Domestic Product (GDP) growth in fiscal year 2016-17 (FY17) is expected to be higher than the last year owing to rebound in agriculture and increased pace of work on infrastructure and energy projects.

According to the second quarterly report released by the bank for the year 2016-17, the current account deficit in first half of FY17 was almost twice the level recorded in the first half of FY16. This was largely due to delayed realization of the Coalition Support Fund (CSF), a decline in the exports, and a surge in the imports. On the fiscal side, coupled with increase in development spending and security related expenditures, the decline in revenue collection led the fiscal deficit to widen by 0.7 percent of the GDP in the first half of FY17 as compared to the last year’s while lower-than-expected growth in tax revenues could undermine the government’s efforts to keep the fiscal deficit at the targeted level and at the same time increase the development spending, it added.

“The challenges in the external and fiscal accounts need to be addressed to sustain macroeconomic stability, which has just started to push the economy towards a desirable (low inflation-high growth) balance. In addition to boosting foreign exchange receipts from reviving exports and private foreign investment, urgent measures are needed to contain imports, especially of consumer and luxury items to keep the overall import bill manageable,” the report said.

The central bank maintanied that a combination of improved competitiveness and administrative measures would produce desirable results in this regard. In particular, there is a need to further reduce cost of doing business, enhance productivity and remove structural impediments in the export sector. “Similarly, the structural reforms and stabilization measures undertaken by the government to reduce the fiscal deficit during the last three years need to be further deepened. In particular, the continuity of concerted efforts aimed at broadening the tax base is necessary to gear up momentum in revenue collection and create the fiscal space required for higher spending on social and infrastructural development”.

The SBP maintained positive outlook for FY17 stating that the completion of early harvest energy projects under CPEC was expected to provide additional boost to the industrial growth. The growth in industry – though likely to fall short of its target – is expected to maintain last year’s level. The textile industry – the largest sub-component of the LSM – is expected to post some recovery in second half of FY17, as exporters cash-flow constraints may ease following the recently announced export package. “The commencement of operations of new power plants and the sustained increase in LNG imports are expected to help electricity generation and gas distribution to maintain last year’s momentum. Similarly, as indicated by strong trends in cement and steel production, the growth in construction sector is likely to remain robust in FY17 as well,” the report said.

The services sector – though showing a mixed trend – is expected to achieve its target growth rate for the year. The current trends in trade, especially imports, higher production and sale of commercial vehicles, substantial increase in bank credit, flourishing housing schemes, and rising internet subscription suggest a vibrant services sector. Incorporating these developments, the latest projections indicate real GDP growth in the range of 5 to 6 percent in FY17, the bank concluded.