The report revealed that the confidence of consumers and businesses, which improved sharply soon after the elections, seems to have tailed off in the most recent surveys on account of rising cost pressures and an uncertain outlook. Furthermore, since the new government has hinted at major revisions in investment and industrial policies, investors, especially foreign investors, seem reluctant to take long-term positions, it added.
The net FDI inflows into Pakistan posted a broad-based decline of 42.6 percent in Q1FY19 as many of the early-harvest energy projects under CPEC are nearing completion, FDI inflows from China into the power sector have been slowing down. Apart from CPEC-related inflows from China, no major activity was observed in FDI, the report mentioned.
The report said that recent economic developments run the risk of intensifying the impact of stabilization measures on broad economic activity. However, it is important to note that the government has initiated important reforms in the fiscal sector that can later be built upon to alleviate the structural deficit.
"While efforts are underway to regain macroeconomic stability, the concurrent progress towards reforms is welcome. It is now important to deepen and accelerate the pace of reforms within the fiscal and energy sectors, and also spread the process across other sectors of the economy," the report emphasized.
The objective should be to rationalize the economy''s incentive structure; enhance ease of doing business via embracing technology and simplifying procedures; and improve public financial management and governance; it said and added that putting right policies in place is critical, even if it takes time, to get the economy out of the boom and bust cycle.
This is important also to benefit on the productivity front, in order to push the growth momentum forward as at this point, when the country''s growing labor force has to be productively engaged, the country cannot afford to get caught up again in low growth-high inflation equilibrium.
Moreover, the report said that taking an initial step towards reforming the real estate sector, the government has notified the establishment of the Directorate General of Immovable Properties, with the mandate ranging from conducting survey-based market valuations, to establishing linkages with provincial revenue & excise authorities. This is a major initiative, which along with the increased interprovincial co-ordination, can potentially help reduce prevailing distortions in the economy''s incentive structure and also improve revenue collection, it added.
With regards to the energy sector, the government has approved an upward revision in gas prices in order to alleviate the financial burden of gas distribution firms.
According to report, the increased raw-material prices and capital outlay also meant that the credit appetite of the private sector was strong, despite a slowdown in the overall economic activity. The impact of input prices on the overall credit off-take can also be seen from the near doubling of average loan size in Q1-FY19 compared to the same period last year.