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Thursday Apr 23 2020
Web Desk

SBP revises projection for budget deficit, predicts negative GDP growth for remaining fiscal year

Web Desk
Governor State Bank of Pakistan Reza Baqir. Photo: File

ISLAMABAD: The State Bank of Pakistan (SBP) has revised upward its projection for the country’s escalating budget deficit to 9.2% of GDP equivalent to Rs3,857 billion in post-COVID-19 situation for the current fiscal year against earlier projection of 7.2% of GDP or Rs3,170 billion.

In an online presentation given to selected economic analysts by SBP Governor Reza Baqir and Deputy Governor Murtaza Syed on Wednesday, the duo projected that the GDP growth would shrink and might stand at negative 1.5% for the current fiscal year.

Also read: SBP suspends bank dividends for first two quarters of 2020

The SBP stated that latest monthly figure for March 2020 pointed to a noticeable slowdown in domestic economic activity, as cement dispatches declined by negative 14.3%, auto sales -69.6%, POL sales -31.4%, and IVA exports of textile -32.5 percent. 

GDP growth to turn positive next fiscal year

The SBP has forecast that the GDP growth would turn to positive 2% in next fiscal year as outlined by the Fund staff in their latest staff report. “The growth is expected to gradually recover while inflation will remain moderate in the current fiscal year,” the SBP high-ups said.

Also read: SBP geared up to tackle 'mother of all external shocks' as Pakistani economy falters

The Planning Commission, however, did not agree to this assessment of both the IMF and SBP as their latest estimates suggested that the GDP growth would be hovering around 1.8 to 2.5% of GDP against earlier envisaged target of 3.3% of GDP for the current fiscal year.

In response to falling inflation and inflationary pressures, the SBP high-ups stated, “The monetary policy has been prudently loosened". In a one-month period, the SBP’s monetary policy committee has brought down discount rate by 4.25%, from 13.25% to 9%.

Also read: State Bank reduces interest rate from 11% to 9%

'Inflation has fallen 450 basis points'

The SBP duo further stated that inflation had fallen 450 basis points since January 2020 on the back of easing food and energy prices and further reduction was expected based on the Sensitive Price Index (SPI).

In the presentation, the SBP said that the Pakistan rupee had depreciated, though less so than many other emerging currencies as South African Rand, Mexican Peso, Russian Ruble, Turkish Lira and many others which witnessed double digit depreciation. 

The SBP high-ups stated that the move to a market-based exchange rate led to significant shrinking of the current account deficit and better fundamentals facilitated capital inflows. They said that Pakistan’s sovereign bond spread had risen in line with other emerging markets. 

Originally published in The News