Reforms, participation of active private sector can boost economic growth: SBP

Reforms, participation of active private sector can boost economic growth: SBP

Pakistan Economic Growth News

KARACHI: Pakistan’s economy has maintained its momentum
towards higher growth as higher infrastructure spending by the
government and decades low interest rates provided a boost to
domestic demand. Side by side, improvements in energy supply
and the security situation also supported this momentum (Pakistan Economic Growth News).

This was said in an annual report released by the State Bank of
Pakistan (SBP) of the financial year 2015-16 on the state of economy,
here Thursday, Business92 reported.

The Report further explains that though some macroeconomic indicators
were short of targets, they still posted better performance over the last year.

“For instance, real GDP growth of 4.7 percent during FY16 was below its
target, but nevertheless higher than the growth achieved a year earlier,” it
said and added that accumulation of the country’s foreign exchange reserves
reached an all-time high level at end FY16; the exchange rate remained stable;
and CPI inflation fell to only 2.9 percent during the year. Similarly, fiscal
consolidation remained on track, and the budget deficit was reduced
to 4.6 percent of GDP – the lowest since FY07.

Notwithstanding these positive macroeconomic stability gains, the report
highlights some challenges as well. Firstly, the current level of private
investments and savings in the country needs acceleration to keep pace
with required investible resources. Secondly, structural issues in the export
industry need to be resolved. Thirdly, the reliance of the tax system on
stop-gap measures is creating distortions in the economy. Finally, the
country needs to spend more on social sector development to address social issues.

The report, however, views Pakistan to be well positioned to address
these challenges. It anticipates all-important support coming from a
stable macroeconomic environment and growing investments in
CPEC-related projects. These would help improve the existing
infrastructure and power supplies to businesses.

Short-term economic outlook

As for the short-term economic outlook, the Report recognizes the
positive impact of improved macroeconomic environment, better energy supplies,
and subsiding security concerns.

In addition to CPEC, economic activity would benefit from pro-growth policies: the
policy rate currently stands at a historic low of 5.75 percent, which has made funding
easier for businesses and consumers. Similarly, growing development spending,
despite a planned reduction in budget deficit, would continue to support infrastructure-related industries.

Given this backdrop, the government envisages a GDP growth of 5.7 percent
for FY17. At the same time, the current account deficit is likely to stay in the
range of 0.5 – 1.5 percent of GDP during the year.

In this context, the Report draws attention to the IMF program’s contribution
in restoring macroeconomic stability and confidence of international creditors.
Crucially, it maintains that the reform process – related to energy-sector,
loss-making PSEs (like PSM, PIA), and business-friendly regulations – must
continue after the IMF program’s completion.

Finally, the Report reiterates that without private sector participation, it will be
hard to achieve a higher and sustainable growth that is built on the pillars of
entrepreneurship, innovation and competitiveness.

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