Economy Review

The GDP growth in Pakistan is going to be consumption-led and is expected to remain under 4 percent in FY13 due to the prolonged crisis in the energy sector and law and order situation within the country which is discouraging private sector investment.

Macroeconomic conditions weakened despite improvement in key economic indicators. CPI inflation fell sharply YoY basis till Mar’13 to 6.6 percent but increased MoM basis to 0.4 percent. However with average inflation for FY13 projected at 8-9 percent this is well within the 9.5 percent target set.

During the first half of FY13, the State Bank of Pakistan lowered the policy discount rate from 12 percent to 9.5 percent, as inflation fell second to the goal of boosting private sector investment. Net outflows of 530USD million in H1-FY13 and 1.4USD billion of debt retired to IMF during the first seven months of FY13 led to a decline in foreign exchange reserves. Further, IMF repayments of 1.6USD billion on account of the 12th installment of stand by arrangement programme in FY13 do not improve on the situation. Total liquid foreign exchange reserves stood at 12.370USD billion. The foreign exchange reserves held by banks other than state bank were 5,092.6USD million.

The surplus in the external current account was primarily due to 1.8USD billion received in coalition support funds. Challenges on the balance of payments is unlikely to subside due to the low expectations of receiving budgeted privatization inflows primarily from the 3G license auction and a declining trend in financial inflows.

Banking spread based on outstanding lending and deposit rates hit 6.18 percent in February’13, which is the lowest ever level in last eight years. It witnessed a massive decline of 112 basis points as compared to February’12 level of 7.30 percent.

Karachi Stock Exchange index to an average in 3QFY13 was 17,457.52mn as compared to 1HFY12 was 15,586.71mn. Volumes increased by nearly 70%.