ARSHAD HUSSAIN
The State Bank of Pakistan (SBP) may keep the monetary policy rate unchanged at 5.75 per cent on November 26 despite the risk of rising inflation, current account deficit and declining Foreign Direct Investment (FDI), the analysts of different brokerage houses said here on Thursday.
The bank has kept the monitory policy unchanged for the last few months of the current calendar year and it would be the 3rd policy announcement during the last four month of this fiscal year. Most of the analyst said that the central bank would keep the policy rate unchanged while few of them said that it may go up by 25 points.
Pakistan successfully concluded International Monetary Fund’s (IMF) 3-year programme in September 2016 and after post-IMF, Pakistan’s economy will remain on track. The external account will remain stable despite stagnant exports and recent concern in media of Pakistan’s mounting foreign debt while Gross Domestic Product (GDP) growth to gradually increase and country’s fiscal situation to remain sustainable. The inflation and interest rates to remain low and exchange rate to remain stable, the analyst at Topline brokerage house said.
The State Bank of Pakistan (SBP) forecasts average CPI inflation in the range of 4.5 ‐ 5.5 per cent for the current fiscal year 2016-17. Any upward adjustments in gas tariff, fiscal slippages, and supply disruptions pose risk to this assessment. Uncertain global oil price is the major risk to this projection. In addition to sluggish global demand, possible dampening impact of Brexit on global commodity prices and difficulties in clearing excess domestic food stock also poses risk to this inflation forecast, the analysts said.
The analyst also revises down GDP growth forecast for 2016-17 to 5 per cent (previous 5.7 per cent) based on lower than expected pick-up in agriculture sector and subdued performance by manufacturing sector so far. Cotton (1 per cent of GDP) is expected to grow 8-10 per cent to 11 million bales, which is below the government’s initial target of 14 million bales. Among industries, even though large scale manufacturing (11 per cent of GDP) remains low, electricity and gas distribution (2 per cent of GDP) were expected to pick up some slack.
Further, services sector that accounts for half of GDP is expected to grow 6.0pc – 6.5pc based on increased growth in transport, storage and communication sector (13pc of GDP) on the back of CPEC.
Consumer Price Index (CPI) inflation was increased by 4.2 per cent Year on Year (YoY) for October 2016 as compared to 3.9 per cent in September 2016. The inflation increased by 0.8 per cent on month-on-month (MoM) basis, as against an increase of 0.2 per cent in previous month, on the back of higher food inflation and quarterly adjustment of house rent, the data said.
The food inflation that contributes around 35 per cent to the total headline CPI inflation was up 3.6 per cent YoY in October 2016 versus 3.1 per cent in September 2016.
During the recent years, the fiscal deficit has continued to improve and declined to 4.6 per cent in 2015-16, lowest in 9 years. Given first quarter 2016-17 fiscal deficit of 1.3 per cent, the analyst said that the government fiscal deficit target of 3.8 per cent looks very ambitious and would settle around 4.6 per cent in 2016-17, which would be manageable. Revenue growth is expected to be higher than expenses growth during the next few years given recent bold moves by the government including higher incremental taxes on non-filers of tax and targeting of new sectors (like real estate) where previous tax incidence was very low. The public debt resultantly is expected to remain in the range of 60-65 per cent of GDP during the next few years.
The CPEC initiative recently received a major boost this month with the first batch of goods transported from the western side of China to Gwadar. Around 100 containers were loaded to a Chinese ship, which marked the inauguration of Gwadar Port that is the flagship project of CPEC. As per our discussions with stakeholders, the goods flows of CPEC is likely to result in transit fees and/or other services fees, the impact/methodology of which is currently being ascertained at the government level.
