The State Bank of Pakistan has released its third quarter report on the state of the Pakistani economy for fiscal 2020-21.
According to the report, there are increasing evidence that the economic recovery accelerated in the third quarter of the fiscal year in the 3rd quarter of the fiscal year. This change was a result of the industrial sector, especially large industry, and the service sector, especially wholesale and retail trade, playing a key role.
In the agricultural sector, record production of five staple crops – wheat, rice, corn and sugarcane – is offsetting declines in cotton production. The growing rise in high-frequency demand indicators such as domestic supplies of cement, oils and lubricants (fuels and lubricants), car sales, consumer finance, FMCG and power generation, reflect a rapid recovery in economic activity. Hence, real GDP growth is tentatively estimated at 3.9% for the full year, compared with a 0.5% cut in fiscal policy in 2020.
These positive results were supported by a vigorous policy response to the evolving pandemic. In addition to virus containment, smart closures, targeted fiscal support and deficit containment, highly flexible monetary policy and robust refinancing mechanisms provided by the SBP will tackle health, employment and cash flow implications, incentives and pandemic relief for government and the companies also together brought the economy out of last year’s Covid recession.
Although the economy recovered significantly, the stability of key macroeconomic indicators in fiscal and external account was an added benefit as the current account and primary balance remained positive in July 2020 -March 2021 period. remittances, which rose $ 4.5 billion to a record high of $ 21.5 billion in the July-March period, plus interest payments on external debt were deferred through the G20 debt service Suspension Initiative (DSSI), international air travel restrictions and lower world oil prices.
At the same time, on the External side, revenues from commercial, bilateral and multilateral sources were supplemented by new receipts from Roshan digital accounts, which surpassed the $ 1 billion mark in April 2021. In addition, the successful completion of IMF review opened up $ 500 million directly from the fund.
Pakistan also returned to international capital markets after more than a three-year hiatus in early April 2021. As a result, SBP foreign exchange reserves rose to a three-year high of $ 13.5 billion by the end of March 2021, and the current account remained in surplus for the first time in the first three quarters since the 2004 budget was passed.
The fiscal deficit of 3.5% in July 2020-March 2021 period was below 4.1% in the corresponding period last year. This is mainly due to the rationalization of expenditures, in particular, a slowdown in non-core operating expenses and a sharp increase in taxes.
However, interest payments remained a significant burden and continued to constrain fiscal policy to development spending. Along with the wider government’s lower deficit, revaluation gains from strengthening PKR and weakening DSSI contributed to a slowdown in debt growth in July-March 21YY compared to the same period last year.
Average inflation was lower than in the previous year. The third quarter result was mainly driven by a slowdown in January growth in the food and poultry sector in January 2021. However, higher prices for electricity, sugar, vegetable oil, cotton and ready-to-wear led to higher inflation in February and March. 2021 led to some increase in inflation.
Loans to the private sector increased by almost 50% in July-March 2021 period compared to last year. The third quarter slowed down mainly due to the repayment of short-term loans. In contrast, SBP low cost refinancing plans such as temporary financial refinancing
The SBP credit line of Temporary Economic Refinance (TERF) scheme continued to stimulate the attraction of loans to fixed assets. Loans of Rs 426.0 billion were approved during the third quarter, of which Rs 74.0 billion were provided through TERF, representing future investment and growth.
Consumer finance has also increased significantly over the period compared to last year. In addition to car and retail loans, housing finance rose markedly as banks met SBP’s mandatory goals of increasing housing and construction finance portfolios to at least 5% of private sector lending to banks by the end of December 2021.
Full Report can be read here
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