Chairing a meeting of the Monetary and Fiscal Policies Co-ordination Board at the Ministry of Finance, Dar said that for the first time the size of the economy has surpassed $300 billion. On average, income of each Pakistani has increased by 22 percent since fiscal year 2012-13. Per capita income today stands at $1,629 as compared to $1,334 four years ago. Inflation was on average 12 percent between 2008-13. The inflation has been contained at 4.16 percent much below the target of 6 percent. Policy rate of the SBP has come down from 9.5 percent in June 2013 to the current 45-year low of 5.75 percent.
As per the party manifesto, Pakistan Muslim League-Nawaz has successfully completed its reform programme. During this period difficult key structural reforms in the country have been implemented. Completion of the programme has strengthened confidence of the international community in the government's economic agenda. The government has put the country on the path of sustainable growth which is being internationally recognized and reflected in the improved ratings by all major rating agencies including Moody's, S&P and Fitch.
Recently, researchers at the Center of International Development (CID) at the Harvard University have predicted that Pakistan's annual growth rate over the next 10 years would be nearly 6 percent. This is a one point GDP growth rate increase compared to their earlier projections whereby Pakistan GDP growth rate was set to grow at 5 percent by 2025.
The minister also remarked that sharp deterioration of PKR - US exchange rate in the interbank market led to speculation and anxiety in the foreign exchange market. However, due to prompt action by the SBP resulted in stabilization and averted the high risk of speculation.
Finance Secretary briefed the meeting on economic situation. The GDP growth of the outgoing fiscal year 2017 recorded at 5.3 percent is the highest in ten years. The impressive growth was on account of growth in services and agriculture sector. The turnaround in agriculture growth was due to government's supportive policies and high credit disbursements. The growth momentum in LSM continued, mainly supported by better energy supplies; lower commodity prices; and accommodative economic policies. The sector recorded an impressive growth of 9.7 percent in April 2017 as compared to (-2.9 percent) last year. During July-April 2017 it recorded a growth of 5.58 percent compared to 3.85 percent. The industry specific data shows that a number of sectors performed well during the period, such as Iron & Steel products 20.26 percent, Automobile grew by 11.41 percent, pharmaceuticals 9.01 percent, Food Beverages 11.60 percent, Fertilizers 0.21 percent, Rubber products 0.36 percent, Non-Metallic Mineral products 6.54 percent, Textile 0.73 percent, Electronics 15.10 percent, Engineering products 4.29 percent, and Coke & Petroleum 0.97 percent. The outlook of Large Scale Manufacturing is encouraging on account of supportive economic policies, low interest rate and higher PSDP spending. The inflation has been contained at 4.16 percent much below the target of 6 percent. The foreign exchange reserves are at comfortable level, while the Foreign Direct Investment (FDI) saw an increase of 8.6 percent during July-May FY 2017.
The meeting noted that external public debt to GDP has reduced from 21.4 percent in FY 2013 to 20.8 percent while net domestic debt increased from 38.8 percent in FY 2013 to 40.5 percent in FY 2016. As of July-March 2017, the net public debt stood at 59.3 percent below the threshold of 60 percent as prescribed in FRDL Act.
The minister informed the meeting that the government is adhering to the Medium Term Debt Management Strategy to make public debt portfolio more sustainable. The government is focusing on extending the average time to maturity of domestic debt. The debt sustainability indicators of domestic and external debt have improved compared to FY 2013.
The meeting was informed that the current account deficit widened to $10.64 billion due to fall in exports and remittances during July-May 2017. The decline in exports is more due to exogenous factors as the decline in exports was also witnessed in other regional countries. The meeting noted that negative effects of exports are bottoming out as during the outgoing fiscal year six months have witnessed positive YOY growth with highest in June 2017 at 16 percent.
The Minister expressed the need for necessary measure to address the widening current account deficit. He said, the government has already initiated a number of measures for exports enhancement. There is no load shedding for the industrial sector. The tariffs have been slashed. He stressed to look into the competitiveness aspect and stressed upon a multi-pronged approach at federal, provincial and local level.
The Governor SBP informed the meeting that monetary expansion during FY 2017 remained aligned with the overall improvements in macroeconomic indicators with substantial contribution stemming from pick-up in private sector credit. In fact, the private sector credit flows posted their highest level since 1999. The credit to private sector recorded strong growth of 18.7 percent (Rs 633.2 billion) during July-23 June FY 2017, compared to 9.5 percent in the comparable period of FY 2016. Prudent monetary policy and lower budgetary borrowing from commercial banks have helped the private sector credit boom. Overall, there has been a broad-based increase in credit demand, especially from fixed investment, during FY 2017 with impetus coming from: textile, manufacturing, commerce & trade, electricity, gas & water supply, food and beverages, coke and refined petroleum, chemicals, cement, construction. Reserve money growth decelerated to 22.5 percent during 01 Jul-23 June FY 2017 as against a growth of 27.1 percent in corresponding period of last year. During 01 Jul-23 June FY 2017, CIC stood at Rs 576.26 billion compared with an increase of Rs 703.65 billion in the corresponding period of FY2016. Total deposits with banks have improved by 12 percent. However, the current account deficit increased to over 3 percent of GDP and policy interventions need to be taken to address this challenge. The Minister for Finance decided to establish an inter-ministerial committee comprising members from Ministry of Finance, Commerce, SBP and PIDE on tariff rationalization so that tariff policy be aligned with trade policy leading to improvement in balance of trade. The Committee will submit its recommendations within four weeks time.
The Ministry of Commerce informed the meeting that trade deficit widened to 32.3 percent compared to last year. Exports have continued to decline at a subdued rate of 1.63 percent and while imports increased by 18.7 percent. Pakistan's exports have increased to EU countries where it is enjoying GSP plus unilateral concessions. The negative effects of the exports are bottoming out, and it is expected that exports will improve in coming months. In this regard the Minister for Finance stated that to help export proceeds, duty-drawback claims would be honored and assured that claims will be cleared along with sales tax refunds, at the earliest.
The minister thanked the members and suggested that the next meeting be called in August 2017 to review the inter-ministerial committee report on tariff rationalization.