Economy to Grow up to 5% Despite Challenges: SBP

The State Bank of Pakistan has projected economic growth of up to 5% in the current fiscal year 2021-22, but warned of challenges including record-high global food inflation, skyrocketing import payments, and rise in utility tariffs, among others.

Released on Tuesday, the economic outlook section of the State Bank of Pakistan’s (SBP) Annual Report 2020-21, nevertheless, did not highlight the possible effect of the latest actions, including aggressive spike in the benchmark interest rate by 1.5pc to 8.75pc and the strict economic conditions agreed to reach staff-level agreement with the International Monetary Fund (IMF) to resume the $6 billion loan program.

“Economic recovery during FY21 is projected to gain further momentum in FY22,” the State Bank said.

The momentum in growth is evident from the substantial surge in machinery and raw material imports, sustained expansion in consumer financing, and robust uptrend in domestic sales as viewed from high frequency demand indicators during the initial months of 2022.

Also, headline inflation is likely to retreat more evidently in the second half of the year, with the elimination of the base effect of hike in power tariffs. “That said, these projections are subject to multiple upside risks, including from a greater-than-anticipated increase in global commodity prices and upward revision in utility tariffs. In addition to triggering a sharp increase in domestic prices, these developments may also give rise to significant second-round impacts on inflation,” the annual report stated.