Showing a satisfactory growth of 4.1 per cent in FY14, the country’s economy may be losing pace in the years to come due to what the State Bank fears erosion in the economy’s future productive capacity.
Declining investment expenditures, the central bank noted with concern, if not improved would be setting the country’s production capacity back. The State Bank, in its monetary policy statement Saturday said, although aggregate demand was still moderate (in SBP’s assessment) a falling share of investment in GDP was “worrisome”.
“It indicates erosion in the economy’s future productive capacity,” the regulator said. Giving numbers, the bank said, the total investment grew by only one per cent in the just-concluded FY14, down from 2.5 per cent growth last year, largely due to decline in private sector investment by 1.6 per cent.
It also maintained its declining trend in terms of per cent of GDP falling to 14.0 per cent in FY14 from 14.6 per cent last year (Figure 16). “Decline in growth in investment expenditures in FY14 validates this concern,” said the State Bank.
It, the SBP said, seemed that the increase in credit for fixed investment in FY14 was meant for the replacement of depreciating capital assets and investment.
Higher consumption still driving the country’s real GDP growth, the growth in private sector credit usually affect investment with a lag of one year. Increase in investment as a share of GDP was critical for a sustainable path to economic recovery in the medium term, it said.
The agriculture sector growth already has showed a negative trend compared to preceding year thanks to decline in the production of cotton and other minor crops. Contributing significantly to GDP, the growth in services sector was also lower than the last year.
Constraints like political stability, law and order, conducive business environment and energy shortages had long been affecting productivity, thereby constraining the economy’s ability to produce at its potential. “A sustainable increase in GDP growth, nonetheless, would require consistent improvement in productivity across sectors,” the central bank said.
