As per State Bank of Pakistan strong economic activity is observed due to broad –based pick up in industrial output, gains in factors supporting production of major crops, growth in private sector credit. This indicates strong chances of achieving 6.0% target of real GDP growth. The projections for inflation and survey-based measures of inflation also depict that in the year 2018 inflation will remain well under targeted 6.0%.
On the fiscal side, healthy tax revenue collection in Q1-FY 18 of around 22% as compared to 4.5% during the corresponding period of last year is a good development sign. However, short-term balance of payment challenges continues to exist. Improvement in export growth, increase in foreign direct investments and other expected financial inflows will help in sustaining this pressure.
Better security conditions and power supply, transformation of fixed investment into increasing productive capacity on ground, low inflation and stable interest rates are also major factors contributing towards development of real sector during Q1-FY18. CPEC projects have also supported in this regard. Considering that seasonal factors will remain normal, agriculture sector is expected to perform better for the second consecutive year. Keeping in view the development, investment in mechanization, support in prices and demand in services in the agriculture sector, real GDP growth is expected to meet the targeted growth level of FY 18.
Average CPI inflation of 3.5%, also remained well below the annual inflation target during to July- Oct 2018. Higher international oil prices expected to influence domestic petroleum prices upward, which might increase inflation in the coming months. However, inflation is still expected to remain in the range of 4.5% – 5.5% projected for FY 18.
Another important development in the monetary sector is shift in the government borrowing solely from central bank towards both Central & other commercial banks. Credit from the private sector grew to the level of PKR 814.9 billion in Oct FY 18 as compared to PKR 436.4 billion in the corresponding period of last year, increase of around 11%.
FDI inflows also reached to $940 million in Oct FY18 as compared to $359m during the same period last year indicating improvement in economy.