KARACHI: The country’s overall macroeconomic outlook appears stable despite challenging global economic conditions, the State bank of Pakistan (SBP) said on Thursday.

“Growth is likely to pick up despite the constraints, fiscal position is strong, inflation is likely to stay low (despite inching up) and risks on the external front have been moderated to a large extent,” the central bank said in its second quarterly report of this fiscal year.

The State Bank expects GDP growth during FY16 to be higher than the last year. “We are optimistic on the industrial sector’s performance, but cannot firmly assess the final outcomes in agriculture and services.”

In FY15, GDP growth was 4.2 per cent while the target for this fiscal year is 5.5pc. The SBP projected the growth in the range of 4pc to 5pc.

“Similar to the balance of payments, we do not see major risks on the inflation front in the short term,” said the report, adding that global commodity prices are not expected to recover anytime soon while a stable rupee is likely to keep inflation expectations further at bay.

“Pakistan’s public external debt servicing obligations are not more than $6 billion per annum until 2020,” said the report. This amount of repayments does not raise much concern, as the country has successfully met similar amount of obligations in FY13 and FY14, it added.

Thus, debt servicing of $ 5.5bn due in CY2016 are well within manageable level, especially keeping in view the existing level of country’s FX reserves (over $20bn) and expected continuation of foreign exchange inflows, said the report.

“The SBP’s reserves at their current level can comfortably finance twice as much payment (gross) as are expected for the next 12 months,” said the report.

The report said that the macroeconomic stability — as reflected in subdued Consumer Price Index (CPI) inflation, adequate foreign exchange buffers, stable exchange rate, low current account deficit despite a sharp decline in exports, and an improved fiscal position — had set the base.

It said the decline in oil prices by reducing the oil bill by 39.8pc helped cut the current account deficit and pushed down inflation in the first half of the current fiscal year.

A surge in the country’s non-oil import bill in October-December FY16, along with a rise in trade deficit, created dilemma. In order to make Pakistan’s growth more sustainable, the cost of production and doing business has to be brought down, energy supplies must be smoothened further, especially via investing in more broad-based and sustainable sources of generation, and export-friendly industrial policies should be laid out.

However, the SBP cautioned that to make an effective contribution in optimising productivity gains in times of a global downturn, the government needs to further expedite the required reforms in the fiscal and energy sectors.

The growth momentum in large-scale manufacturing (LSM) continued to remain strong in July-December FY16, supported by better energy supplies, lower commodity prices, and accommodative policies — for instance, higher Public Sector Development Programme (PSDP) spending, Apna Rozgar scheme, and multi-decade low interest rates. The sector was able to record a growth of 3.9pc during the half-year compared to 2.7pc a year ago.

“More encouragingly, this growth was realised despite some negative developments like halting of gas supply by the Sui Southern Gas Company (SSGC) to Pakistan Steel Mills over non-payment of bills, and sluggish global demand,” the report added.

However, the report that while lower prices have benefited consumers, these also have had a serious impact on some commodity-producing sectors of the economy: for instance, lower produce prices have hit farmers’ incomes and affected their cropping decisions.

Published in Dawn, April 1st, 2016