KARACHI: The State Bank of Pakistan (SBP) has said that the inflation rate is likely to be 7-9% in the current financial year while the economic growth rate is expected to be 4-5%.
The SBP has released the Annual Economic Review Report for the Fiscal Year 21-2020 which reviews the Fiscal Year 2020-21. According to the report, Pakistan’s economy recovered in FY21 and real GDP growth reached 3.9 percent.
More importantly, with this expansion in economic activity, the current account balance fell to a 10-year low, resulting in a significant increase in foreign exchange reserves. General Consumer Price Index (CPI) inflation also moderated during the year, mainly due to relatively stable prices of non-food and non-energy items. However, due to supply challenges, overall prices, especially food items, remained high.
The report says that the economic recovery has been helped by strong and targeted monetary control of the epidemic, as well as immediate and targeted monetary and fiscal measures to address its impact on economic growth and revenue.
The government provided targeted financial assistance up to about 2% of GDP through the economic stimulus package, which helped more than 15 million families through emergency cash transfers.
In addition, in FY21, the government provided a number of incentives to boost activities in the agriculture, manufacturing and export sectors. Large-scale manufacturing increased by 14.9% in FY21 due to the lower core effect of compression due to code in FY20.
Agricultural growth was slightly lower than in FY20, however, wheat, rice and maize production rose to historic levels. SBP’s concessional refinancing schemes such as temporary financial refinance facility and long term financing facility also played an important role in increasing the fixed investment loans during the year.
The current account deficit narrowed sharply due to workers’ record high remittances and export receipts, which led to an increase of بینک 5.2 billion in SBP’s foreign exchange reserves during the year.
Receipts from the IMF and other multilateral and bilateral lenders, the issuance of Eurobonds after a long hiatus, and deposits and investment proceeds from non-resident Pakistanis through bright digital accounts provided substantial external financing. High exports partially offset a significant increase in import payments.
The fiscal deficit, which was 8.1 percent of GDP last year, fell to 7.1 percent in the year under review. Development spending also recovered modestly, declining for the past three years.