ISLAMABAD: The State Bank of Pakistan on Monday released its SecondQuarterly Report on The State of Pakistan’s Economy for FY19. As stated bythe report, the effects of macroeconomic stabilization measures taken sinceDecember 2017 started to unfold as the economy moved into the secondquarter of FY19.
More specifically, monetary tightening along with exchange rateadjustments, reduction in development expenditures of the federalgovernment and regulatory measures helped contain domestic demand, which isvisible from a marked slowdown in imports. This together with decelerationin external demand, underperformance of major kharif crops, and moderationin the fixed investment loans, let to notable deceleration in economicactivity. Meanwhile, inflation continued to increase, mainly due tocost-push factors and some persistence in underlying demand pressures.
According to the report, average headline CPI inflation rose to 6.5 percentduring Q2-FY19 – the highest quarterly inflation since Q1-FY15, when globalcrude oil prices were around US$ 100 per barrel. This trajectory waslargely dictated by its core component, non-food non-energy (NFNE), whichfurther gathered momentum as the pass-through of exchange rate depreciationand second round impact of high oil price accentuated its already elevatedlevel.
Moreover, the report highlighted that the fiscal deficit continued to stayhigh despite a sharp cut in development spending since the beginning ofFY19 and is undermining the efforts to contain domestic demand. Whilerevenue collection declined, current expenditures increased.
Regarding the external sector, the report observed that there was animprovement in the current account deficit due to decline in imports and amarked increase in workers’ remittances during the review period. However,exports were generally affected by a slowdown in international demand.Also, net financial inflows were lower than last year, leading to a drop inSBP’s FX reserves.
The report contains a special section which evaluates the fiscal burden ofstate-owned enterprises in the power sector.
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Recommended measures include a move towards more effective, apoliticalcollection process; investment in the transmission and distributionnetwork; and creation of a national level consensus towards the formulationof a coherent energy sector policy.
The report features another special section on the importance of humancapital in the context of CPEC. The analysis takes stock of the country’sexisting human capital and the employment opportunities set to arise in thenear future as CPEC enters its next phase focusing on industrial specialeconomic zones and agriculture. It then assesses just how prepared thedomestic workforce is to capitalize on these opportunities, and provides aroadmap to address the associated skill-deficit.
In the big picture, the report underscores the need to step up investmentsin human capital and technology. This will boost productivity and increaseexportability of the country’s goods, services and skilled labor, and allowit to generate FX in a sustainable manner.
