Low export, inflation, documentation of economy still major challenges

PIAF calls for putting economy on a balanced and sustainable growth trajectory

LAHORE      -        The Pakistan Industrial and Traders Associations Front Chairman Mian Nauman Kabir has called for putting the economy on a balanced and sustainable growth trajectory, addressing the underlying structural vulnerabilities, as low export growth, limited foreign exchange reserves, documentation of economy and higher food inflation are still major challenges to the economy.

PIAF Chairman Mian Nauman Kabir, in a joint statement along with senior vice chairman Nasir Hameed and vice chairman Javed Iqbal, also expressed concern over the State Bank prediction that Pakistan is likely to miss the real GDP growth target of 4 percent for this fiscal year (FY20) mainly due to subdued performance of agricultural and manufacturing sectors.

He stressed the need for building on gains on the ease of doing business front, which requires not just the capacity development in key public institutions, but also a continuous dialogue with relevant stakeholders to ensure smooth implementation, he added. He said that owing to low unit prices, exports growth remained low. However, in volumetric terms exports witnessed a noticeable growth.

Referring to the quarterly report of the central bank, Nauman Kabir said that the overall deficit remained lower as compared to the same period of last year, and the primary balance recorded a surplus for the first time in 7 quarters. This improvement was made possible through both revenue enhancing and expenditure control measures. Importantly, development expenditures witnessed a sharp growth of 30.5 percent during the quarter, the report mentioned.

However, despite these stability gains, the overall confidence among businesses and consumers remained weak, as they struggled to preserve their purchasing powers and dealt with operational constraints stemming from the adjustment process, he said and added that while large businesses especially export-oriented and import-competing industries remained bullish on fundamentals and they refrained from taking a long-term view.

PIAF senior vice chairman Nasir Hameed, while referring to the report of the State Bank, observed that the macroeconomic stabilization process picked up momentum with the initiation of the IMF's Extended Fund Facility (EFF) program and the SBP continued to keep the monetary policy consistent with the medium-term inflation target, whereas, consolidation efforts were visible on the fiscal front.

In case of GDP, Nasir Hameed noted that the revised estimates for the kharif season suggest that the production of important crops is likely to fall short of target for FY20. The large-scale manufacturing sector witnessed a decline of 5.9 percent in Q1-FY20 on YoY basis. This contraction was broad-based, as construction-allied industries, petroleum and automobile industries continued on downward path.

PIAF vice chairman Javed Iqbal said that in contrast, previous corrections in the exchange rate helped the export-oriented industries, as reflected in the relatively better performance of textiles and leather. On balance, however, achieving the real GDP growth target of 4 percent appears unlikely, the SBP said.

On the external front, the balance of payments continued to improve during Q1-FY20. Beside significant improvement in trade deficit, and with the receipt of the first EFF tranche from the IMF and increase in foreign portfolio investment, the current account gap was plugged by the available financial flows.

Javed Iqbal said that these inflows also helped the SBP to increase its foreign exchange reserves by US$ 656.2 million and reduce its net forward liabilities by US$ 1.3 billion during the quarter.

From the policy perspective, it is important to continue with the adjustment process despite weakening economic activity, as well as the visible stability gains in terms of the falling twin deficits, the report said and added the policy continuation is warranted given the lingering vulnerabilities in the economy and the chronic nature of the structural weaknesses".

Within the budgetary borrowings, a clear shift was observed, with the government borrowing heavily from commercial banks to retire its SBP debt. This was unlike last year, when the government had borrowed heavily from the SBP to retire its commercial bank debt.

With regards to private sector credit, a general slowdown in the manufacturing and commercial activities resulted in significantly lower credit appetite of businesses.


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