The recent monetary policy statement by the SBP suggests that Pakistan's economy may be turning around a corner. This is a positive development and one must hope that policymakers continue to focus on the economy.
TLDR: things are improving, but there is still a long way to go.
TLDR: things are improving, but there is still a long way to go.
While the SBP acknowledges that "inflation outruns have been on the higher side," it blames them on temporary food price increases. However, it does not expect inflation to fall anytime soon, setting a target of 24 months to tame inflation to 5-7% per year.
SBP also highlights "receding pressures" the external account, a primary balance surplus for the first time since Q2-FY16, and an end to "deficit monetization" which have "improved the inflation outlook."
The bank also sees an improvement in "export oriented and import competing sectors" but sectors such as auto and construction continue to face pressure. Increased PSDP disbursements, however, may spur increased growth in the construction sector, according to the bank.
One key area of concern is declining private sector credit, which "fell by Rs 4.1 billion during the first four months" of this fiscal year. This data point is an important one, and if it were to turn positive in the coming months, we may see an uptick in growth.
The SBP still expects the economy to grow by 3.5%, which is not an appropriate rate of growth for Pakistan. However, if @PTIofficial were to redouble its focus on the economy, it may enable sustainable economic growth. Pakistan is not out of the woods yet, but its getting there.
