Pakistan’s GDP Growth Surpassed FY21 Target by a Huge Margin

In the face of the COVID-induced contraction of 0.47 percent in the financial year 2019-20, Pakistan’s economic growth rebounded to 3.94 percent, well above the target set for the financial year 2020-21 of 2.1 percent.

According to the Annual Performance Review FY21, released by the State Bank of Pakistan (SBP), the year remained challenging as the global economy adjusted to the economic and financial challenges posed by the pandemic throwing multiple waves of virus outbreaks and ensuing containment measures. Amidst such testing times, Pakistan’s economy however strongly rebounded compared to the previous fiscal year as well as in terms of the targets set for FY21 at the beginning of the fiscal year.

As per the performance review, SBP’s supportive monetary policy stance including quantitative measures to inject liquidity in a timely manner, supplemented by fiscal policy measures, provided a targeted, dynamic, and well-coordinated policy response to COVID. These measures helped address the imminent liquidity and solvency concerns of businesses and households that had been emerging since the virus outbreak in March 2020 and supported the better than anticipated economic performance during the FY21.

SBP’s Measure To Support Economy

SBP’s quantitative measures were well-targeted, well-diversified across beneficiaries and temporary in nature; and in aggregate provided liquidity support of around 5.0 percent of GDP. To ease off the challenging business environment, SBP swiftly introduced concessional refinance schemes to prevent layoffs (Rozgar Scheme); facilitate healthcare institutions to upscale their facilities (Refinance Scheme to Combat COVID-19); and encourage firms to undertake long-term investments (under the Temporary Economic Refinance Facility).

The export-related procedural requirements were relaxed to counter the limited mobility amidst unfolding national lockdowns and the scope for concessionary Export Finance Scheme (EFS) was expanded. In addition, SBP allowed bank loan restructuring and loan deferment for firms including Small and Medium Enterprises (SMEs) and households.

Furthermore, the anchoring of inflation expectations, despite some upward pressures from supply management issues and surge in international commodity prices, allowed the Monetary Policy Committee (MPC) to keep the policy rate unchanged throughout the year. The adoption of the forward guidance on Monetary Policy by SBP since January 2021 played a major role in reducing short-term policy uncertainty for stakeholders.

Pakistan’s external indicators also improved significantly in FY21 as SBP’s foreign exchange grew more than 40 percent and the country’s current account deficit plummeted to a 10-year low mainly because of record-high worker’s remittances and export receipts.

While market-determined exchange rate improved export competitiveness, the financial incentives announced by SBP and the government for remittance processors under the Pakistan Remittance Initiative (PRI) encouraged the use of formal banking channels for remitting funds by emigrants, which paved the way for increasing inward remittance to USD 29.4 billion during the year.

The inflation also moderated to 8.9 percent in FY21, well within the target range of 7-9 percent announced by SBP. Similarly, other key macro-economic balances including current account, fiscal balance, and the country’s foreign reserves improved during the FY21.

Financial Inclusion

With regard to the Payments Infrastructure of the country, SBP undertook major initiatives aimed at financial inclusion, digital onboarding of customers, enabling remote banking, providing digital modes of investments to customers through banking channels, and improving payment systems efficiency.

Financial inclusion remained the top strategic priority at SBP, in line with the vision of the National Financial Inclusion Strategy. During FY21, SBP’s special focus remained on rural, underserved, and unbanked areas, while issuing licenses for the opening of new branches of commercial and microfinance banks. With regards to credit disbursement, SBP had a renewed focus on underserved economic segments, especially housing and construction finance, agriculture finance, and finance for micro, small and medium enterprises. Moreover, the third five-year strategic plan for the Islamic banking industry was issued by SBP in April 2021 to set a strategic direction and strengthen the existing growth momentum of the industry.

As for its regulated entities, SBP during FY21 implemented Risk-Based Supervision Framework, a forward-looking framework that would allow the SBP to pursue a coherent risk-based approach through proactive identification of risks, and take timely mitigation measures to ensure financial stability in the country.

According to the annual review, to achieve its broad strategic goals and strengthen organizational efficiency, SBP took major initiatives during FY21 aimed at workforce rationalization, attaining gender diversity, automation of process workflows, strengthening cyber security and risk management framework, and improving transparency through enhanced communication with external stakeholders.

  • Is this a sponsored post? this looks like one since the PM brings in the money from KSA without any explanation, and do not disclose the terms and condition agreement with IMF and no one explains the dollar rate change, price parody, as well as the rise in Utility rates…. can you explain this?

  • close