GDP increases to decade high of 5.3pc

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GEO NEWS
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The State Bank of Pakistan, in its quarterly review of Pakistan's economy, has said that real Gross Domestic Product (GDP) has increased to a decade high of 5.3 per cent.

The SBP report added that certain other macroeconomic indicators, such as subdued inflation, investment growth and rising private sector credit have also showed an encouraging picture. 

The real GDP growth in fiscal year 2016 (FY16) was 4.5pc. 

"This acceleration was achieved on the back of a strong performance of agriculture and service sectors, which grew by 3.5pc and 6pc respectively," said the quarterly review. 

The revival in the agricultural sector was brought about by favourable policy measures, including a subsidy on fertilisers, reduction in sales tax on tractors, and increased access to finance. 

Better agriculture had a positive spill-over effect on the manufacturing and trade sectors. 

Similarly, an overall improvement in business sentiment along with supportive policies, such as a low interest rate, high infrastructure spending and improved law and order has encouraged firms to pursue expansion plans. 

A key contributor of the industrial sector, large-scale manufacturing (LSM), grew by 4.9pc in FY17 compared to 2.9pc last year.  

Public Sector Development Programme (PSDP) and China-Pakistan Economic Corridor (CPEC) also played their part in boosting construction related industries. 

Challenges faced

The SBP report said the country has an adequate level of foreign exchange (FC) reserves, despite "some decline, there are no immediate concerns over its external position."

"It is imperative to exploit all sources of FX inflows – most importantly exports – in order to comfortably finance the rising import demand."

The report added that exports have been effected by a number of structural, institutional and entrepreneurial gaps, which have limited the country's competitiveness. 

Another major challenge faced by the economy is low tax collection. Certain measure, such as differential tax structure for filers and non-filers can potentially increase the tax base, said the SBP report. 

The quarterly review added that recent fiscal incentives for investment have led to deceleration in tax collection.  

"Concerted efforts are required to further improve efficiency of the tax system."