Challenges to Agricultural Sector Growth: Achieving FY26 Target Seems Difficult, Says SBP

Challenges to Agricultural Sector Growth: Achieving FY26 Target Seems Difficult, Says SBP

KICKIN' IT IN KARACHI:

Gear up, folks! The State Bank 'o' Pakistan (SBP) reckons the 4.2% GDP growth aim for FY26 ain't no piece of cake, but it's achievable. According to experts at Arif Habib Limited Research, the engine of this growthtrain will be the industrial and service sectors, thanks to solid import volumes, a booming automobile industry, rising factory utilization, improved work sentiment, and a consistently high Purchasing Managers' Index (PMI) since late 2024.

Now, you might be wonderin' what the SBP bigwig, Jameel Ahmed, had to say? Well, he mentioned that the SBP will soon spill the beans on their own growth, inflation, current account, and FX reserves predictions, courtesy of their upcoming assessment in July. The FY25 debt repayments, totaling a whopping 25.8 billion smackers, are nearly all paid off, with just 400 milileddars left hangin' fire. The debt servicin' for FY26 is predicted to stay much the same, with juicy details to be laid out later in the next MPC meeting.

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Got your farmin' boots on, peeps? The SBP's callin' it: this year's current account will be in the black, with improved financial backups as we step into FY26. Remittances are forecasted to reach 38 billion clams for FY25, jumping from last year's 31.3 billion. A grand seven bilillion dollars of that boost comes from shifting money from the underground economy to the legit world. Now they're cookin' up incentives, in collab with banks and the government, to keep that trend rollin'.

The OMO stock saw a bump lately, mainly due to two reasons: higher cash in circulation for Eid and a bit of a time gap between debt payments and incoming bucks. Still, the OMO levels are expected to drop in the near future as the dough starts pourin' in.

Now, Jameel Ahmed dropped a bomb...er, announcement: the SBP's profit will be passed on to the government, to the tune of 2.4 trillon rupees, after a quick audit and Board approval early in FY26. He also confirmed that the profit-sharing system, after the 2022 SBP Act amendment, now happens annually, not quarterly. Let it be known that they're on track to meet the June NIR target under the IMF program, and they aced the Dec'24 target with room to spare. Jameel mentioned that the SBP's baseline oil price estimate is a cool 75 dollars a barrel.

For FY26, the Governor projected that external debt repayments would remain more or less the same.

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Some Quick Stats:- Arif Habib Limited has projected a growth rate of approximately 3.6% for FY26, which is less than the government's target of 4.2%.- The central bank's reduction in policy rates from 22% to 11% can potentially ease domestic debt servicing costs and boost economic growth.- The government is eyeing tax reforms and new measures, like a 3% General Sales Tax (GST) on petroleum products and hikes in Federal Excise Duty (FED) on tobacco, to increase revenue and aid economic stability.- The budget includes incentives for the construction sector to help drive growth.- Agriculture and industrial sectors might chip in to help meet the ambitious 4.2% growth target, but challenges such as high military spending, high electricity prices, and no relief for the industrial sector may hinder success.

1. The SBP's prediction for external debt repayments in FY26 remains relatively stable, with the Governor indicating a potential risk of stagnation in economic growth due to factors such as high military spending, high electricity prices, and lack of relief for the industrial sector.
2. Despite Arif Habib Limited's lower growth projection of approximately 3.6% for FY26 compared to the government's target of 4.2%, the industrial and service sectors are expected to contribute significantly to overall growth due to factors like solid import volumes, a booming automobile industry, improved work sentiment, and a high Purchasing Managers' Index (PMI).
3. In an effort to maintain financial stability and encourage legitimacy, incentives are being implemented in collaboration with banks and the government to channel money from the underground economy into legal channels, driving an expected boost in remittances for FY25. However, this shifting of funds could potentially increase the risk of inflation, adding another financial aspect for the SBP to consider in their upcoming July assessment.

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