Pakistan’s Exports Value Likely to Touch $24 billion in FY18: SBP

State Bank of Pakistan has projected that Pakistan’s exports value is likely to touch the $24 billion mark in the current financial year 2017-18 in tandem with supportive development witnessed in the recent months.

According to the quarterly report of SBP’s “State of Pakistan’s Economy”,  the exports of the country are projected to grow in the current financial year from $23 billion to $24 billion based on three major positive developments at the economic end.

Firstly, while some of the structural headwinds still persist, such as lack of product and market diversification, uninterrupted energy supply to the manufacturing sector is going to add on to the current growth momentum

Second, improving cyclical factors, such as increasing global demand and commodity prices, is another positive for Pakistani exports.

Third, recent exchange rate depreciation is expected to reflect positively on the exports.

Macroeconomic Indicators Remain In Momentum

SBP is optimistic that major macroeconomic indicators will remain stable and grow slowly despite political uncertainty prevailing in the country.

The central bank retained its projection for GDP growth, which is 6 percent for the financial year 2017-18.

The prospects for GDP growth remain strong. The supply side indicators suggest that the economy is well poised to achieve the target growth of 6 percent for FY18. From the demand side, rising income levels of consumers are fueling retail sales and commercial activities. Businesses, meanwhile, are in the middle of an expansionary phase, with the international investors’ attention-boosting the level of competition and quality in the domestic market. The evidence of this can be found in sectors such as cement, steel, automobile, and electronics, where substantial capacity expansions are already underway. This is also reflected in the Overseas Investors Chamber of Commerce and Industry (OICCI) survey of October 2017 which reports buoyant sentiments of the business community largely influenced by the retail and wholesale trade sector.

The inflows of remittances will continue in the country from overseas Pakistanis and will likely touch the mark of $20 billion.

The inflows related to recently launched Sukuk and Eurobonds, and expected CSF inflows should help keep the external sector stable to some extent in FY18.

Fiscal Deficit

The fiscal account balance may remain under pressure as well to settle at 5 percent of the GDP.  This is mainly because the recent trends show that the performance of tax collection has been as per expectation, development spending is also maintaining the momentum. However, current expenditure has risen significantly.

The past trends suggest that current expenditure usually increases sharply in an election year. Containing current expenditure as per announced budget may be challenging going forward. Therefore, even with growth in revenue and the fiscal deficit target for FY18 could be missed.

Inflation

Some of the leading indicators, such as the OICCI survey report, indicate bullish sentiments about the economy on the back of growth in retail and wholesale trade sector; while IBA-SBP Consumer Confidence Survey November 2017 edition, indicates an increase in inflation expectations for the next six months. However, staple food stock from last year, along with gains in agriculture yields in current year’s Kharif crops are nonetheless expected to keep a check on rising demand pressures in CPI. Additional drag can come from investments in various manufacturing sectors for capacity expansion.

Therefore, average CPI inflation in FY18 would remain below its annual target of 6 percent. There are, however, two major risks to this inflation forecast. First, recent exchange rate depreciation through expectations channel, and after some lag, through the higher imported goods’ price can seep into domestic prices. Second, uncertain global oil price poses risks. Recent developments, however, indicate more upside risks.