KARACHI: Achieving the targeted GDP growth rate of 5.5 per cent has become challenging due to damage to all major kharif crops, said the State Bank of Pakistan (SBP) in its first-quarter report of this fiscal year.
“Preliminary estimates suggest below-target production for all major kharif crops (cotton, rice, and sugarcane) due to bad weather, virus attacks and sluggish agri commodity prices. More importantly, cotton and rice crops would not be able to achieve last year’s production levels,” the report said.
However, the SBP sees a ray of hope in the large-scale manufacturing (LSM) sector, which “has shown some signs of recovery on the back of a steep fall in global prices of key raw materials; robust growth in construction (mainly bolstered by increase in public sector spending) and auto sector; and better gas availability to fertiliser.” But despite these positive developments, LSM needs further momentum to achieve full year growth target of 6pc.
Within the service sector, the State Bank expects transport, storage and communication, and finance and insurance subsectors (with combined share of 28.1pc in services) to grow strongly.
However, the outlook for wholesale and retail trade subsector (having 31.1pc weight) remains unclear: while a better performance by the large-scale manufacturing is positive for wholesale and retail trade, the overall trading of agriculture produce is likely to remain weak due to fall in production of rice and cotton crops.
The report finds it encouraging that a number of firms in cement, textile, iron and steel, and POL (petroleum, oil and lubricants) sectors are making investment for capacity expansions; debottlenecking of plants; balancing, modernisation and replacement (BMR); installation of coal fired or captive power plants, etc.
Budget deficit in the July-September quarter was 1.1pc of GDP, showing a marginal improvement over the same period last year. Though tax collection remained below expectations amid lower inflation, the reduction in the budget deficit was primarily due to moderate growth in current expenditures, said the SBP.
“The tax collection by the FBR [the Federal Board of Revenue] was about Rs40 billion less than expected during the first quarter, which was mainly due to sluggishness in sales tax,” said the report.
The central bank said the burden of fiscal consolidation fell on government expenditures. On a positive note, the government managed a moderate growth in current expenditures and directed the flow of funds towards various development works.
Meanwhile, the financing pattern of the budget deficit saw heavy reliance on commercial bank borrowings which increased to Rs443 billion during the quarter, it added.
The sluggish growth in the current expenditures paved way for the government to increase its development spending.
“As a result, the federal PSDP [Public Sector Development Programme] increased by 80pc during the quarter which was also complemented by 40.6pc rise in provincial PSDP,” the State Bank said.
The federal government directed significant resources towards improving transport infrastructure, revamping of railways and improving water resources and distribution network.
In addition, marked improvement in security conditions, relatively better energy management, and persistently low global commodity prices, have positioned the economy to further improve on its performance.
Although budget deficit for the first quarter of FY16 was lower than the same period last year, tax collection could not post the required growth. In order to keep the fiscal deficit within target without compromising on development spending, tax efforts have to be increased manifold, particularly by widening tax base and effective enforcement.