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Challenges to economy

Challenges to economy

According to a senior official of the State Bank, the country’s economy has been facing different challenges despite improvement in macro-economic indicators for the last one year. In its first monetary policy for 2016, the bank kept the policy rates unchanged against what the experts believed there was a room for cut in policy rates by 50 basis points. The bank holds contraction of trade at the regional and the local levels responsible for decline in exports. Therefore, the bank sees decline in exports as a global phenomenon which has nothing to do with the interest rates introduced by the banks for specific schemes. Besides, the bank believes that decline in cotton and rice production also posed challenges to the economic performance of the country. However, release of loan by the IMF under extended fund facility program and contributions from multiple sources improved the country’s external buffers. The improvement in the security situation has also strengthened the confidence of the local and foreign investors.

The monetary policy of the bank has pointed out improvement in major macroeconomic indicators in the first half of the current fiscal year, as the large scale manufacturing units gained traction and fiscal consolidation remained on the track during the period. The bank sees decline in consumer price index by 2.1 percent during the first half of the current fiscal year whereas year on year CPI inflation has also reversed. The bank expects average inflation in 2015-16 to be in the range of 3-4 percent whereas downward trends in global oil prices and excess wheat, rice, and sugar stocksat home could exert downward pressure on inflation.According to the Asian Development Bank, the prospects for large-scale manufacturing remain subject to progress on power supply. The present leadership came to power on the slogan that it will end electricity shortage, but it is issuing new deadlines to rid the country of load shedding.

The nation has pinned all its hopes on the China Pakistan Economic Corridor and Chinese investment in the energy sector. However, unless the government attracts foreign investors to the mega projects and encourages the local investors to avoid capital flight, it will be difficult to predict any positive development in coming years. Instead of increasing the tax net, the government is fully prepared to squeeze the current taxpayers or chase the small entrepreneurs which will definitely affect the growth of small business enterprises in the country. However, according to the State Bank, the large-scale manufacturing has grown by 4.4 percent during the first quarter of this fiscal year as compared to 3.1 percent in the same period last year. It hoped that the growth in manufacturing sector will have positive impact on the economy.