He said that overall domestic economic activities are gaining momentum and the country achieved an 8-year high 4.7 percent real GDP growth in FY16 compared to 2.8 percent in FY13. However, he said political uncertainty always put a negative impact on the economy, therefore, political stability is critical to sustaining this growth momentum.
Although, economic growth is gradually increasing, Pakistan needs some 7 percent annual GDP growth to accommodate burgeoning population growth and create new job opportunities, he added. Wathra said that inflation has come down to decade''s low of 2.9 percent, current account deficit shrank significantly to $2.8 billion end of FY16 and foreign exchange reserves have doubled from $11.1 billion to $23.1 billion during the last three year. In addition, budget deficit is expected to reduce to around 4.3 percent in FY17 compared to 8.2 percent of GDP in FY13, he added.
Talking on the slowdown in remittances, he said that July''s numbers are low because Ramzan-related and most Eid flows had already come in June and secondly there were less number of working days in July as businesses were effectively closed during first 10 days of the month.
In addition, global economic conditions are not conducive. Due to deflation in advanced economies, wages are stagnant. Moreover, oil market is in slump. These factors have somehow caused a negative impact on remittance flows. The global remittance market is also going through a tough phase and the world remittances have declined by 2.7 percent in 2015. India, Thailand and Sri Lanka are all facing a decline in remittance inflows, the governor SBP mentioned.
"Pakistan, however, stands out. It has posted strongest a growth of 12.5 percent during the last five years. Even remittances have surpassed the target for FY16 and reached almost $20 billion. In addition, outlook remains positive as number of Pakistanis who proceeded abroad increased by 16.3 percent in FY16," he added. Dr Saeed Ahmed, chief economic advisor, said that after a 5.7 percent decline in FY15, Pakistan''s exports have fallen by 12.1 percent in FY16 mainly due to a slow demand and lower commodity prices in the world market and Pakistan is no exception as same trend has been witnessed in other countries.
"Our key export markets especially Europe is experiencing low growth and exports of most emerging economies have fallen. However, quantum exports of some products including knitwear, ready-made garments, non-basmati rice, bed-wear, cotton fabrics, and towels have increased during the period," he added. A key challenge in Pakistan''s exports is the lack of diversification of products as well as markets, he said and added that Pakistan''s exporters are unable to adapt to changing preferences.
"Labor productivity is low; quality certifications are costly; research, development and branding is not pursued by most entities; and components and processes are not standardised in SME sector," he mentioned. Dr Saeed pointed out that even rupee depreciation will not help and presently, the slump in global demand is taking its toll. Although currencies of India, Indonesia and Malaysia went through significant depreciation, they were unable to increase exports, he mentioned.
However, he said, the exports outlook is positive as domestic conditions are improving. Power and gas supplies to exporting firms is smoothened while law and order has improved. In addition, the government has committed to settling refund claims of exporters and recently billions of rupees payments have been made by the government. Private firms are cash rich and interest rates at the lowest level; new investments will bring in innovation and may also help diversify the product base, he said.
Discussing the debt, he said that Pakistan''s total debt and liabilities are Rs 22.5 trillion at end June 2016. But not all of this debt is government''s obligation. Of the total debt, Rs 2.8 trillion is non-government debt (PSE borrowings; commercial bank borrowings from abroad; debt of private firms).
As of June 2016, the country''s total public debt stock (excluding external liabilities) was of Rs 19.7 trillion, of which, the domestic component was Rs 13.6 trillion and the external component was Rs 6.1 trillion. In terms of percentage, public external debt to GDP was 21.3 percent end of June 2013 compared to 20.4 percent in June 2016. As of today, external debt servicing obligations for Pakistan are not more than an average of $5 billion per annum until 2020 and previously Pakistan had successfully met higher obligations in excess of $6 billion in FY13 and FY14, even with much smaller volume of FX reserves, he mentioned.
Discussing the monetary policy, Governor SBP said that SBP has brought the policy rate down to 5.75 percent, which is the lowest level since the early 1970s. Monetary easing resulted in a reduction in weighted average lending rates to 7.2 percent in July 2016.
The lower cost of borrowing and improved business environment led to a notable increase in credit to private sector. It is expected to surge more in coming months. Credit to private sector stood at Rs 457.6 billion end of June 2016 compared to Rs 209.6 billion in June 2015.