WASHINGTON: Pakistan’s “macroeconomic picture is improving” steadily and the country’s GDP is projected to grow by 4.3 percent this year with further expansion in growth expected next year and in the medium-term, the International Monetary Fund (IMF) said Tuesday.
The real GDP is projected to grow by some 4.3 percent in FY2014/15,driven mainly by the agriculture and construction sectors, the Fund said in a document, containing staff report and statement regarding sixth review of the country’s economic progress under a 36-month and over $ 6 billion lending programme agreed in September 2013.
“Growth is expected to reach 4.7 percent next year (0.3 percent higher than previous projections), helped by the decline in oil prices and imports. It should rise further over the medium-term with improvements in the energy sector, public enterprises, the investment climate, and remove key bottlenecks for investment.”
In a letter of intent and a memorandum of financial and economic policies, Pakistan’s Finance Minister Senator Ishaq Dar has said the country will achieve a 4.3 % growth rate this financial year but at the same time it continues to strive for a goal of 5.1 % growth.
In the IMF document, the financial institution noted that the plunge in oil prices has reduced the import bill and improved the trade balance. But lower cotton prices have impacted exports.
Meanwhile, foreign remittances flowing into Pakistan continue to increase at double-digit rates and the financial account has also improved, supported by a recent international Sukuk issue and multilateral disbursements.
The Rupee has gained 1.2 percent over the last quarter against the dollar and the real effective exchange rate (REER) has appreciated 10.6 percent since the onset of the programme.
Headline inflation has dropped further, to 3.9 percent in January 2015, with core inflation also easing to 7.0 percent.
“Financial system indicators remain sound with robust earnings and high solvency ratios. The pre-tax profit of the system increased, mainly due to increased net interest income, lower provision charges, and higher noninterest income. Asset quality has slightly improved with a decline in the nonperformingloan (NPL) ratio to 12.3 percent.
The capital adequacy ratio (CAR) increased to 17.1 percent due to accumulation of profits and fresh equity injection by some banks.
“Private sector credit grew at a 7.4 percent annual pace, mainly in the manufacturing, construction, and transportation sectors.”
With respect to Pakistan’s economic performance, the document says it remained strong and “all end-December 2014 quantitative performance criteria (PCs) were observed, as well as the indicative target on cash transfers under the Benazir Income Support program (BISP).”
Although the indicative target on federal tax revenues was missed, the authorities have taken actions to address the shortfall and are on track to meet the end-March 2015 indicative target, the Fund noted.
The end-December 2014 structural benchmark (SB) on amendments to the relevant tax laws and submission of the AntiMoney Laundering Act (AMLA) was met, as were the end-February SBs on enhancing internal operations and risk management of the State Bank of Pakistan (SBP) and improving monetary policy operations.