Economic activity is strengthening in Pakistan

Pakistan State Bank has stated that data of 1HFY20 for large scale manufacturing (LSM) indicates that economic activity is strengthening in export-oriented and import-competing industries, including gains in cement, while inward-oriented industries continue to slow.

This was shared at a central bank meeting on 28 January 2020, when the Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 13.25 per cent for coming two months.
The decision reflected the MPC’s view that the outlook for inflation has remained broadly unchanged. On the one hand, recent inflation figures have been on the high side and there remain near-term risks to inflation, primarily from food price shocks and potential increases in utility prices.

However, several factors are expected to gradually moderate the pressure on inflation. These include the recent appreciation of the exchange rate after the introduction of the market-based exchange rate and ongoing fiscal consolidation. On balance, the SBP’s projection for average inflation remained broadly unchanged at 11-12 per cent for FY20.

During the first half of FY20, tax revenue collections showed a healthy increase of 16 per cent over the same period last year. On the expenditure side, while non-interest current expenditures have been strictly controlled, the federal releases for public sector development programmes (PSDP) stood at PKR300bn in 1HFY20 as compared to PKR187bn in the same period last year. This increased public spending is expected to support business activity, especially in construction-allied industries. From the monetary policy perspective, the MPC emphasised that the continuation of fiscal prudence would remain critical for effective anchoring of market sentiment and improving the inflation outlook.