State Bank of Pakistan is worried about the external sector as the need for financial flows might grow further. The average inflation clocked in at 3.9 percent during first half of this year, lower than earlier projection due to smooth supply of perishable items, stable exchange rate and absorption of higher international oil prices by the government, says the Monetary Policy Committee (MPC). After a detailed discussion, the MPC kept the policy rate unchanged at 5.75 percent.
A press release issued by SBP says: "The average inflation clocked in at 3.9 percent during the first half of the year, lower than the earlier projections due to smooth supply of perishable items, stable exchange rate, and government's absorption of the impact of higher international oil prices. The current trends suggest that the actual inflation would be lower than the target rate of 6 percent in FY17.
"Growing CPEC-related imports, decline in exports, absence of Coalition Support Fund, and slowdown in remittances, pushed the current account deficit to USD 3.6 billion in the first half of FY17, from USD 1.7 billion in the same period last year. This higher deficit was financed by an increase in bilateral and multilateral funding along with pick up in investment flows. Overall surplus in the balance of payments stands at USD 0.2 billion in the first half of the current year. Going forward, with the aforementioned risks to the external sector, the need of financial inflows would grow further.
"A sizeable net retirement of government borrowing to scheduled banks and an increase in bank deposits helped increase private sector credit. Benefiting from the historic low interest rates, private businesses are actively borrowing from the banking sector for upgrading and expanding their business processes. Private sector borrowed Rs 375 billion in first half of FY17 as compared to Rs 282.6 billion availed in the corresponding period of last year. Loans for fixed investments increased by Rs 134.1 billion in the first half of FY17 compared with an expansion of Rs 83.8 billion in the same period of last year. Demand for consumer financing, especially for auto loans, also gathered pace during the first half of the year.
"Healthy credit expansion, along with higher production of Kharif crops, visible improvements in energy supply, and upbeat business sentiments signal recuperating real economic activities. Large-Scale Manufacturing grew by 3.2 percent during the first five months of the current fiscal year and a further increase is expected on account of growing infrastructure spending and recent policy support for export oriented sectors.
"Based on an assessment of the above developments and after detailed deliberations, the Monetary Policy Committee has decided to keep the policy rate unchanged at 5.75 percent."
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Trade and Foreign Investment
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Trade in Goods -Major Groups (million US$)
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Jul-Dec Share1
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Jul-Dec FY16 FY15
FY17 FY16 FY17
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Exports 10,524 10,771 100 21,970 24,083
Textile group 6,105 6,492 58 12,759 13,540
Knitwear, bed wear 2,222 2,249 21 4,436 4,472
Cotton cloth 1,068 1,153 10 2,331 2,487
Cotton Yarn 544 733 5 1,266 1,818
Readymade garments 1,097 1,050 10 2,160 2,044
Other manufactures group 1,748 1,919 17 3,803 4,410
Chemical and pharma 493 515 5 1,052 1,250
Leather items2 425 475 4 906 1,073
Cement 150 188 1 347 417
Engineering goods 88 109 1 214 275
Jewellery 5 4 0 7 11
Food group 1,577 1,724 15 3,715 4,402
Rice 713 825 7 1,845 2,038
All others 1,094 635 10 1,693 1,730
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Imports 21,392 20,197 100 40,441 41,367
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Petroleum group 4,998 4,784 23 8,360 12,344
Petroleum products 3,194 2,853 15 5,098 7,774
Petroleum crude 1,182 1,632 6 2,570 4,393
Machinery group 3,250 3,070 15 6,262 5,609
Telecom 462 648 2 1,201 1,225
Electrical machinery 578 646 3 1,251 935
Power machinery 516 518 2 1,005 814
Agriculture & other chemicals group 3,381 3,475 16 6,715 6,699
Plastic materials 858 891 4 1,791 1,772
Fertilizer manufactured 314 504 1 734 700
Food group 2,490 2,207 12 4,600 4,624
Palm oil 821 819 4 1,600 1,681
Tea 253 264 1 490 364
Metal group 1,561 1,592 7 3,643 3,247
Iron steel (IS) and IS scrap 1,239 1,262 6 2,911 2,675
All others 5,712 5,069 27 10,860 8,844
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Trade Balance -10,868 -9,426 -18,471 -17,284
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1 Share (in percent) is calculated as a ratio of cumulative flow of a group
(item) to cumulative flow of total exports/imports during Jul-Dec FY17.
2 Includes tanned and manufactured leather.
Net Foreign Direct Investment (FDI) in Pakistan (million US$)
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Jul-Dec YoY
growth
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FY17 FY16 Jul-Dec FY16 FY15
FY17
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Net inflows: Of which 1,081 979 10.4 1,901 923
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Selected Countries
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USA 38 -44 186.8 40 209
UAE 77 76 2.2 139 219
UK 45 84 -47.1 138 170
China 204 444 -54.0 626 257
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Selected Sectors
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Communication -7 75 -109.1 237 45
Financial businesses 7 140 -95.3 289 256
Oil and gas exploration 86 151 -42.7 249 299
Power 211 457 -53.8 751 219
Trade 13 8 61.0 27 50
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Memorandum Item:
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Net overall FDI3 1040 970 1882 850
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Source: Statistics & Data Warehouse Department (S&DWD), SBP.
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