The SBP released Pakistan’s Second Quarterly State of the Economy Report for FY21, which showing the strengthening of the economic recovery during the second quarter of the fiscal year. This is evident in the pace of growth in industrial activity and product exports.
The construction and food processing industries generated much of the impetus for industrial activity. The construction industry benefited from the favorable policy environment, which included government tax incentives under the Naya Pakistan Housing Scheme construction support package, as well as State Bank financial measures.
To support the Government of Pakistan’s vision, the State Bank has taken several steps since July 2020 to support the provision of financing to the housing and construction sector, including providing incentives and targets to banks.
Large-scale manufacturing (LSM) grew 7.6 percent during H1-FY21, with its second-quarter growth rising to 10.4 percent, LSM’s highest quarterly growth since Q4-FY07.
Factor Played Role in Economic Recovery :
In agriculture, Kharif’s crops performed better than last year and the government’s crop support package for Rabbi played an important role in the economic recovery.
The SBP’s policy response comprised liquidity support through continued low-interest rate, deferral and loan restructuring, and refinancing schemes to support payroll, healthcare, and companies looking to incur major expenditures.
In addition, tax cuts for the construction sector, pending refunds from exporters, concessionary energy prices, and rights concessions on imported raw materials contributed to the economic recovery.
As economic momentum intensified and the country successfully navigated Covid’s second wave without resorting to tight mobility restrictions, corporate demand for credit nearly doubled from a year earlier during H1-FY21. A significant portion of this credit has been extended through SBP’s concessionary refinancing schemes, notably the Export Financing Scheme (EFS), the Long-Term Financing Facility (LTFF) and the Temporary Economic Refinance Facility (TERF), as per the companies sought capacity expansion and Balancing, Modernization, and Replacement (BMR) activities.
Moreover, the government’s decision to allow greater private sector involvement in LNG import has the potential to resolve many of these issues and ultimately increase the share of the relatively cheaper fuel in the economy’s energy matrix.