Pakistani Economy shows improvement - State Bank of Pakistan
- From: Muhammad Javed Iqbal <kaleemjavediqbal@xxxxxxxxx>
- Date: Wed, 31 Dec 2008 22:39:10 -0800 (PST)
KARACHI: The State Bank of Pakistan said on Monday that the economy
had improved during the first quarter of the current fiscal year and
some macro-economic indicators had shown strength after a steep fall
in 2007-08, Dawn reported.
In its first quarterly (July-Sept) report the SBP expressed the hope
that economy would see stabilisation despite lower than expected
‘The sense of crisis gripping Pakistan’s economy in the initial months
of the financial year 2009 has visibly eased by November 2008, as the
government moved to address the most immediate risks and entered into
a macroeconomic stabilisation programme to support medium-term reforms
under the aegis of the IMF,’ the report said.
The fiscal performance improved consequent to the policy shift, with
the overall fiscal deficit estimated to have dropped to 1 per cent of
the annual GDP. This was consistent with the annual fiscal deficit
target set under the IMF stabilisation programme.
The SBP said that reduction in fiscal deficit had been brought about
mainly by a drastic cut in development expenditures.
The data available so far show that the government has made a fine
start to contain the fiscal deficit. However, the fiscal improvement
appeared to be largely based on reduction in oil subsidies and a cut
in development expenditure.
According to the July-Sept data, revenue grew by 24.4 per cent
compared to 14.8 per cent of the corresponding period of last year.
Similarly, exports increased by 12.7 per cent against 6.5 per cent of
last year. The money supply was negative 0.2 per cent while it was 4
per cent during the same period last year.
‘On a positive note, both fiscal and current account deficits are
estimated to improve in FY09,’ said the SBP.
Inflation remained the biggest challenge as it was still around 19.1
per cent on a 12-month average, it said.
The central bank expressed concerns that despite a sharp fall in
global commodity prices, its impact was not passed on to the end
consumers. It said the government had substantially reduced the prices
of petroleum products, but the transportation cost had not been
The report pointed out that domestic commodity prices did not decline
in tandem with the sharp fall in international prices.
It said one of the biggest challenges for the government would be to
ensure the pass-through of the decline in international commodity
prices to consumers. While the recent downward adjustments in the
administered prices of key fuels was appreciable, the reversal in
transport fares and goods transportation charges was almost
negligible, the SBP said.
It said consumer awareness, role of the media, quicker settlement of
import duties and other taxes might be required to accelerate the dis-
The report said that temporary liquidity shortages with the commercial
banks were viewed as signs of financial crisis in the country, leading
to a fresh round of speculative attacks on domestic currency.
‘Unfortunately, these developments coincided with the global financial
and liquidity crises, thus it was perceived that the domestic crisis
was also triggered due to the same reasons as faced by western
financial institutions,’ the report said.
It said the global recession and risk averse behaviour of investors
might severely impact international trade and level of forex inflows
in the economy.
The SBP’s estimates for both imports and exports have been revised
downwards, with a more pronounced effect on imports. At the same time,
in the event of a shortfall of external financing, the burden of
financing the fiscal deficit will disproportionately fall on the
domestic commercial banks, since the government has committed not to
borrow incrementally from the central bank.
In addition, the report said, foreign direct investment inflows might
be substantially lower than in recent years, in which case pressures
on forex reserves could remain strong.
‘Both possible developments indicate continuing risk on interest rates
and exchange rate, and thus the need for continued vigilance by
policymakers,’ said the SBP.
‘The economy needs effective policies and implementation of reforms in
FY09 to regain macroeconomic stability in the midst of a challenging
year. Real GDP growth is likely to be significantly lower than the
annual target and inflation will breach its target with a wide
margin,’ the report said.
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