November 18, 2020 (MLN): The State Bank of Pakistan (SBP) has improved its growth outlook as it has predicted Pakistan’s GDP to grow between 1.5%-2.5% in FY21, compared to FY20, wherein Pakistan’s GDP growth contracted by 0.4%, disclosed annual report issued earlier today.
On the export front, SBP expects export values within the range of US$ 23.4 –23.8 billion in FY21, higher than the US$ 22.5 billion recorded in FY20.
Similarly, the SBP expects imports to remain higher than last fiscal year, given the anticipated pickup in economic activity following the lifting of lockdowns, and firms’ efforts to replenish inventories. In particular, steel imports is expected to revive in FY21 on the back of concessions for the construction industry and progress on housing finance. Energy imports, however, would depend on the ongoing substitution trend between imported and local fuel sources.
For oil prices, SBP estimates that by the end of CY-2021, the crude oil market is projected to remain range-bound due to weaknesses in the aviation sector and the risk of re-imposition of lockdowns amid a still high number of active Covid cases. Given this stability in oil prices, domestic fuel prices are likely to remain steady during FY21, the report highlighted.
However, as previous adjustments in the power and gas tariffs are due, there is an upside risk to overall energy inflation, it added further.
With regards to food prices, SBP underlined that it may come under pressure due to widespread torrential rains and increased risks of flooding, which may cause crop losses.
On the other hand, SBP predicted the non-food-non-energy segment of CPI to ease further, as chances of a significant pick-up in domestic demand remain low due to weak financial position of businesses and households. For overall headline inflation, SBP kept its forecast intact at 7% to 9% in FY21. This indicates that SBP will keep its policy stance loose till economy recover to its potential.
On the fiscal side, SBP projected fiscal deficit upto 7.5% vs targeted 7%. Whereas, on external front, current account deficit is projected at 1% to 2%.
These growth projections are subject to risks, including from the evolution of Covid, extreme weather conditions, external demand, and progress on the reform front, said SBP.
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