May 16 , 2015
News
Macroeconomic indictors showing positive trend: SBP
* Central bank says foreign inflows continue to increase reserves of the country through different sourcesKARACHI: Pakistan’s macroeconomic indicators are showing a positive trend in the current financial year, as foreign inflows continue to increase the reserves of the country through different sources amid controlled inflation, which is driving the GDP growth at the higher side.
The State Bank of Pakistan (SBP) in its second-quarterly report released on Friday predicted that some of the key positives will continue into the second half of the year, especially in the external sector. Several FX inflows have realised in the second half, including coalition support fund; proceeds from the further divesture of HBL; and receipts from the IMF, while more are expected, like disbursements from the ADB, World Bank and other sources. Furthermore, remittances are likely to maintain their robust growth for the rest of the year. Export growth will probably remain modest and the country’s import bill will remain comfortable due to low oil prices and imposition of regulatory duties on a number of items. With comfort in the balance of payments, the exchange rate is expected to remain stable in the second half, which coupled with low fuel prices, will continue to dampen inflationary expectations. The SBP projects CPI inflation in the range of 4 to 5 percent for the whole year, as compared to the original target of 8 percent.
The SBP in its report showed optimism that credit to the private sector will pick up, as sugarcane crushing gains momentum, and reduction in interest rate stimulates credit demand by businesses.
Supply side of the credit to the private sector may also improve, as borrowing by the government is likely to be within target with the availability of funds from external resources.
However, government borrowing for commodity operation may experience some pressure with the procurement drive for wheat. The purchasing wheat at the support price of Rs 1,300 per 40kg would lock-in a significant amount of money in wheat finance, unless existing stocks are offloaded.
The ability to offload is challenging as a glut-like situation in the international market dampens export prospects, whereas available stocks and a large (expected) crop size, may not allow the government to break-even in the domestic market. Already the outstanding stock of wheat procurement loans stood at Rs 363 billion by end-December 2014.
The full-year budget deficit is expected to remain higher than the target of 4.9 percent of the GDP for several reasons: the required growth rate for tax collection during H2 to achieve the revised target is high, interest payments may increase in H2 with the six-monthly coupon payments on Pakistan Investment Bonds (PIBs) in January 2015, PSDP spending generally remains higher in the second half; and expenditures on Zarb-e-Azb and rehabilitation of IDPs cannot be compromised on. Moreover, pressure from power-related subsidies may continue despite a decline in generation cost (due to a reduction in global oil prices). Furthermore, the power sector continues to suffer from high transmission and distribution losses, With persistent shortfall in recoveries, how these costs would be settled at the year-end remains to be seen.
Finally, the GDP growth is likely to remain higher than last year’s level. A better wheat crop, on the back of favourable weather conditions and increase in support prices, may compensate for the sluggish performance of kharif crops.
Courtesy www.dailytimes.com.pk