Pakistan’s central bank raises GDP forecast to 4-5% amid domestic economic recovery

KARACHI: Pakistan’s central bank on Tuesday projected the country’s economic growth rate to remain between four and five percent during the current fiscal year, as it revised its earlier forecast of 3.9 percent due to domestic economic recovery and improved inflation outlook.
The central bank also decided to keep the key policy rate at seven percent, a stance it has been maintaining since June 2020.
“The Monetary Policy Committee [MPC] was encouraged by the continued domestic recovery and improved inflation outlook following the recent decline in food prices and core inflation to keep the policy rate unchanged,” said Governor State Bank of Pakistan (SBP) Dr. Reza Baqir while addressing a virtual news conference in Karachi.
“Besides, the consumer and business confidence have risen to multi-year highs and inflation expectations have fallen,” he said, adding: “Due to these positive developments, growth is projected to rise from 3.9 percent in FY21 to 4-5 percent this year.”
The SBP governor maintained the key risk to economic growth could come from the spike in COVID-19 cases amid a low vaccination rate.
“The MPC felt that the uncertainty created by the ongoing fourth COVID-19 wave in Pakistan and the global spread of new variants warranted continued emphasis on supporting the recovery through accommodative monetary policy,” he added.
Discussing the country’s current account deficit, he said the imports were expected to grow on the back of the domestic economic recovery.
“The MPC noted that the market-based flexible exchange rate system, resilience in remittances, an improving outlook for exports, and appropriate macroeconomic policy settings should help contain the current account deficit in a sustainable range of two to three percent of the GDP in FY22,” he added.
Baqir said that Pakistan’s economic recovery was primarily driven by large-scale manufacturing, construction and service sectors.
He added that growth was further expected to pick up during the current fiscal year due to several measures announced in the budget.
Such measures include increased development spending along with reduced regulatory duties and sales tax on the import of raw materials and capital goods.
“These measures will directly benefit the construction and allied industries, as well as export-oriented industries. Agricultural growth is also expected to contribute favorably [to the economy] despite reported water shortages at the start of the sowing period of Kharif crops,” the SBP governor said.
The governor said that Pakistan’s external position was at its strongest in the last several years.
“This is the lowest current account deficit in 10 years, supported by all-time high exports and remittances. The SBP’s forex reserves rose by $5.2 billion during FY21 to end at over $17 billion or around three months of imports,” he added.

Pakistan’s central bank raises GDP forecast to 4-5% amid domestic economic recovery