Covid-19 still poses downside risks
Although inflation has remained on the higher side, the State Bank Of Pakistan (SBP) has kept the key policy rate unchanged at 7 percent with the expectation that supply side pressures, especially for food inflation, will gradually subside, bringing average inflation to the more acceptable range of 7-9 percent for FY21. Announcing its Monetary Policy Statement (MPS) for the next two months, the SBP presented a stable to positive outlook for the economy, with particular emphasis on increased business activity in the construction sector, indicated by higher cement sales, while figures posted by the automobile industry are more than pre-Covid -19 levels. It seems the government’s plans to open up the country following the initial partial lockdown during the first wave of the Coronavirus, are paying off. Soon after lifting restrictions, the PTI government engaged the SBP to ensure the availability of cheap loans from commercial banks to businesses and individuals setting up construction projects. SBP made it mandatory for banks to not only provide cheap financing but earmark a part of their respective portfolios for this purpose. The strategy seems to have paid off, particularly for ancillary businesses, providing much needed support to recover from the beating they took when the pandemic hit early in the year. There is of course a caveat to all the positive news mentioned so emphatically in the MPS: the ongoing second wave of Covid-19.
Pakistan was able to manage the initial onslaught from the virus quite impressively, and yet it took a severe toll on the economy. As the rest of the world remained shut down, exports dwindled, and while the SBP mentions that exports have recovered to their ‘pre-covid levels’, the new surge in cases across the world poses serious risks to maintaining this momentum in the coming months. From a domestic standpoint, it seems some form of a strict lockdown will have to be imposed in view of the rising positivity rate and the public evidently not taking the necessary precautions. SBP’s MPS paints a rosy picture for the coming two months but the most significant pitfall remains the second wave of the coronavirus that at the moment seems to be getting out of control, which does not bode well for the economy.
Source: https://www.pakistantoday.com.pk/2020/11/24/sbps-stable-outlook/