Economic Survey

Economic Survey 2020/21: fiscal stimulus package results in quick turnaround in economic activity


ISLAMABAD: After the COVID-19 outbreak, the State Bank of Pakistan (SBP) proactively reduced the policy rate by a cumulative 625 basis points (bps) from 13.25 percent to 7.0 percent, within almost 3 months between March and June 2020, said Economic Survey of Pakistan released on Thursday.

The target of monetary policy was shifted towards supporting growth and employment during the pandemic.

During FY2021, SBP has continued with an accommodative monetary policy stance with 7.0 percent policy rate which has supported the economic recovery while keeping inflation expectations under control and safeguarding financial stability.

“Besides sharply lowering the borrowing cost, SBP introduced a host of measures aimed at supporting the businesses and households during the challenging time. These measures, along with a fiscal stimulus package especially for revival of construction, led to a quick turnaround in economic activity in the country during 2020/2021.”

During the period 1st July-30th April, FY2021 Broad money witnessed an expansion of Rs 1,664.8 billion (growth of 8.0 percent) against Rs 1,698.1 billion (growth of 9.5 percent) during the same period last year. Growth in money supply mainly contributed by Net Foreign Assets (NFA) of the banking system, which increased by Rs 950.2 billion against an expansion of Rs 931.1 billion last year, reflecting an improved balance of payment position. Whereas, Net Domestic Assets (NDA) of the banking system observed an expansion of Rs 714.6 billion during the period under review compared to an expansion of Rs 767.0 billion during same period last year.

During the period 1st July-30th April, FY2021, overall private sector credit witnessed an expansion of Rs 454.5 billion against Rs 318.5 billion last year.

On a positive note, fixed investment loans increased significantly by Rs 140.4 billion during July-April, FY2021 against the borrowing of Rs 0.4 billion same period last year, which augurs well for the industrial sector and overall economic growth in the coming years.

The government has borrowed Rs 675.9 billion for budgetary support during 1st July-30th April, FY2021 compared to Rs 1,171.3 billion in the same period last year. Within budgetary support, the government has borrowed Rs 1,840.6 billion from scheduled banks as compared to the borrowing of Rs 1,813.4 billion in a comparable period last year.

On the other hand, the government has retired Rs 1,164.7 billion to SBP as compared to the retirement of Rs 642.2 billion during the same period last year.

This shows a continuation of government adherence to zero borrowing from the central bank.

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