Economy made encouraging recovery but structural vulnerabilities remain: SBP

The State Bank of Pakistan (SBP) on Monday noted that the economy made an “encouraging recovery” during the outgoing fiscal year (FY) 21 but warned that “certain structural vulnerabilities” continue to require the government’s attention.

The central bank issued the warning in its “Third Quarterly Report on The State of Pakistan’s Economy” for the fiscal year 2020-21 which was issued today.

“While the economy made an encouraging recovery during FY21, certain structural vulnerabilities continue to merit attention,” said the SBP.

To put fix those vulnerabilities the SBP pointed out that four areas required attention.

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“First, in the agriculture sector, the secular decline in cotton production needs to be addressed,” said the SBP. It added that to fix this there was a need for the “timely availability of pest-resistant seed varieties”. It also said that further support from agriculture extension departments was required in particular to “promote the adoption of climate-smart farming practices that could enable better outcomes”.

“Second, in the external sector, the widening of the merchandize deficit needs to be contained to a sustainable level. Greater self-sufficiency in agriculture, through adoption of better farming and crop management practices, and maintenance of adequate stocks can reduce the need to import commodities (such as wheat, sugarcane and cotton) to bridge domestic shortfalls or counter temporary price pressures,” said the SBP.

The central bank said to resolve this there was a need to discourage the “import of luxury consumer items” and “greater diversification of exports, in terms of value-added items and destinations” needs to be promoted.

“Third, efforts are required to mitigate food inflation, triggered largely by supply-side issues in the management of agriculture commodities,” said the SBP.

It added that this can be achieved if there is “better coordination among federal and provincial food departments, provision of reliable data, vigilant monitoring of stocks and food prices, and timely import of commodities”.


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