Daily The Business

GDP growth pickups widened macroeconomic imbalances: SBP

M J Hayat

LAHORE: The pickup in GDP growth came at the cost of widening of
macroeconomic imbalances as manifested in a 5-year high fiscal deficit
and a record high current account deficit in FY18, State Bank of
Pakistan has released its Annual Report on the State of Pakistan’s
Economy for the fiscal year 2017-18 today. According to Report, the
growth momentum gained further strength as the economy achieved its
13-year highest real GDP growth of 5.8 percent in FY18. The GDP growth
was also broad-based, as all the three sectors – agriculture, industry
and services – contributed positively to this acceleration, the Report
highlights.

The Report states that the acceleration in GDP growth was supported by
host of factors, including low cost of financing, improved energy
supplies, favorable business sentiments, fiscal incentives through
subsidies, and increased access to credit. At the same time, higher
public spending and progress on CPEC-related projects stimulated
economic activities besides inducing firms to enhance their production
capacities.

The Report highlights that the pickup in GDP growth, however, came at
the cost of widening of macroeconomic imbalances as manifested in a
5-year high fiscal deficit and a record high current account deficit
in FY18. Therefore, the challenge to maintain desired equilibrium of
low inflation-high growth grew substantially which prompted several
demand containment measures including monetary tightening, exchange
rate adjustments, and other regulatory measures aimed at curbing
imports.

The Report also points out that like previous expansionary cycles in
Pakistan the growth in FY18 was led by a surge in consumption. It
further underlines the need for increase in investment to sustain
higher economic growth.

In addition, the Report features a special chapter dedicated to the
digitization of services in Pakistan.  The chapter documents the
notable developments taking place across three key domains:
e-commerce, fintech and e-government.  It makes a compelling case for
stakeholders to further facilitate the advance of digitization, given
its potential to trigger investment, financial inclusion, productivity
gains, and entrepreneurship – all of which can, in turn, be a boon for
economic growth.

The Report also discusses several aspects of CPEC Long Term Plan
related to the development of agriculture sector of Pakistan. The
Report identifies potential areas of improvements in agriculture along
with discussion on how Pakistan stands to benefit from this
opportunity under the umbrella of CPEC.

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