KARACHI -  The State Bank of Pakistan (SBP), in its report released on Friday, said that current account deficit had almost doubled compared to the last year.

This was due to surge in growth-inducing imports along with non-realisation of CSF and decline in exports and remittances. The central bank, in its second quarterly report for FY17 on the State of Pakistan’s Economy, says that the overall economic environment remained conducive for growth, on the back of accommodative monetary policy, increase in development spending, and CPEC-inspired activities.

The report shows that average CPI inflation had risen from 2.1 percent in H1-FY16 to 3.9 percent as in H1-FY17, which reflected higher domestic demand and an increase in global commodity prices. However, it highlights that on year-on-year basis, the CPI inflation has fluctuated in a narrow range during this period.

The report has also noted improvements in investors’ confidence as reflected in an uptick in private sector credit, especially for fixed investment purposes; foreign interests in Pakistani companies; and increased production of consumer durables.

Similarly, surge in the import of machinery and raw materials also points to a robust industrial activity and increasing productive capacity in future. According to the report, growth in Large-Scale Manufacturing (LSM) recovered in Q2-FY17 with an increase in the production of food, cement, steel, pharmaceuticals, automobiles and electronic industries.

Growth in agricultural sector is also expected to rebound on account of higher production of cotton, sugarcane and maize and increased prospects for wheat harvest close to last year after rains in early February 2017.On an encouraging note, the report acknowledges that the foreign inflows – FDI, loans, and Sukuk issuance – were little more than sufficient to finance higher current account deficit.

It, nevertheless, highlights the need to contain current account deficit to manageable levels to sustain external sector stability. Similarly, the document notes that fiscal deficit had increased due to low revenue generation amid higher development and security related spending. While it terms sustained increase in development spending commendable, it also underscores the need to enhance revenue collection.

Finally, the report perceives the growth to maintain the upward trajectory while inflation to remain below the target during FY17.

Zamir Sheikh