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Mixed economic outlook

Statistics show that present strategy initiatives and developments counting monetary tightening, exchange rate depreciation and changes in import and custom duties are all expected to dampen local demand, particularly imports. The extra revenue initiatives and a cut in federal development spending proposed in the Finance Supplementary (Amendment) Bill, 2018 might contain fiscal deficit also. However, these developments would have implications for growth and inflation rate going forward in Pakistan. In this context, statistics also explain that the real GDP growth target of 6.2 percent for FY2019 appears ambitious.


The State Bank of Pakistan (SBP) also mentioned in a statement that the industrial sector, in particular, may records a slowdown because of to a predicted reduction in consumer demand. More particularly, construction-allied and consumer durable industries may see slower growth in production. The former may be affected by a contraction in development spending, while the latter could be hit by growing local prices because of exchange rate depreciation and higher borrowing cost. Furthermore, lower sugar production on account of predicted fall in sugarcane crop may also dampen the food group’s contribution to large scale manufacturing (LSM) growth. SBP officials also recorded that the fall in the area under sugarcane crop, water crisis at the time of sowing of Kharif crops – particularly cotton – and weak trends in the off-take of fertilizer show that agriculture sector may not repeat last year’s outstanding performance.

key macroeconomic targets & projections
Details FY18 FY19
Target SBP Projections
percent growth
Real GDP 5.8 6.2 4.7 – 5.2
CPI (average) 3.9 6 6.5 – 7.5
billion US$
Remittances 19.6 21.2 20.0 – 21.0
Exports (fob) 24.8 27.9 27.0 – 28.0
Imports (fob) 55.8 58.5 59.5 – 60.5
percent of GDP
Fiscal deficit 6.6 4.9 5.0 – 6.0
Current a/c deficit 5.8 4 5.0 – 6.0
Source: SBP

Present rains and enhanced water accessibility also increased area under rice and cotton crops, however, may provide some support. Therefore, experts have also stated that growth in agriculture may decline below the target also the last year’s level of 3.8 percent. Slower growth in both agriculture and industrial sectors would also affect condition of the services sector in Pakistan. In this background, the real GDP growth is expected in the range of 4.7 to 5.2 percent during FY19.


Additionally to slower economic activity, exchange rate depreciation and other administrative initiatives, mainly the raise in import duties, will assist moderate growth in imports barring any major shock to foreign oil rates. Meanwhile exports are predicted to sustain the FY2018 momentum into FY2019 as well; though uncertainties because of rising international trade tensions could pose some downside risks to this momentum. Besides the lagged impact of rupee depreciation, SBP officials also recorded that enhanced energy supply, better availability of raw materials and continuation of the incentive package for export-oriented industrial units are the main factors supporting prospects of higher growth in exports. Furthermore the Government of Pakistan can also take advantage from an expected rise in food rates in foreign market. Persistence of drought-like situations in main wheat producing states could lead to higher wheat prices, growing prospects for Pakistan to offload surplus wheat stock.

Inflation in Pakistan (Base 2007-08)
Index Average July – November % changes November over November % changes
2018-19 2017-18 2016-17 2018 2017 2016
CPI 6.02 3.59 3.92 6.50 3.97 3.81
SPI 2.08 1.14 1.51 1.26 2.13 0.61
WPI 11.48 1.69 3.05 13.50 2.86 2.56

Moreover, SBP officials also recorded that workers’ remittances are predicted to rise moderately during FY2019 on account of an uptick in foreign oil prices, steady economic activity in advanced economies, and many initiatives taken to facilitate remittances by official channels like m-wallet and as an remittance account. Incorporating these developments, the current account deficit is also predicted to be in the range of 5 to 6 percent of GDP for FY2019.

In addition to the earlier policy initiatives aimed to contain imports, present changes in income tax – partial reversal of the tax relief proclaimed in the FY2019 budget, administrative revenue steps, and further raise in regulatory and federal excise duties will assist sustain a higher growth in tax collection. Similarly, the proclaimed reduction in development spending and austerity initiatives are expected to comparatively slower the growth in overall fiscal spending. These steps are predicted to contain the fiscal deficit in the range of 5 to 6 percent of GDP during FY2019.

The State Bank of Pakistan statement also showed that the overall assessment, therefore, suggests that underlying inflationary pressures may persist. Rise in gas tariffs, import duties and excise duty will more add to inflation both directly and indirectly. Moreover, pass-through of higher oil prices and exchange rate depreciation would keep inflation predictions high. Some of the impact of these factors, however, is expected to be offset by the rise in policy rate and lower food inflation, which is predicted to remain subdued in FY2019 as well in view of sufficient stocks of staple food commodities. With these developments in the background, average inflation is estimated in the range of 6.5 to 7.5 percent during FY2019, against 3.9 percent registered in FY18 and 6.0 percent target for the year. However, there are risks to this assessment emanating chiefly from volatile energy price. Moreover, international food prices may also rise in case drought-like situations persist in main wheat producing states.

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