News
Tuesday, December 20, 2011
GDP growth likely to settle by 3-4% in FY12: SBPStaff Report
KARACHI: The GDP growth is likely to settle at in the range of 3-4 percent by the end of financial year 2011-12, State Bank of Pakistan (SBP) in its annual report “The State of the Economy” said with the projection of fiscal deficit position at remain 5.5 to 6.5 percent in the current financial year.
SBP expects inflation to be within a band of 11.5-12.5 percent in FY12, which is broadly in line with the Annual Plan target of 12 percent,’ the report added.
The report said that policymakers might consider formulating a comprehensive medium-term fiscal reform master plan, which is staggered and sequenced on the basis of the hard lessons of the recent past.
Coordinated documentation, transparent collection with oversight, an equitable plan to capture all commercial businesses and institutions into the tax net, a restructuring agenda for loss-making public state enterprises (PSEs), and a credible enforcement mechanism, must anchor this master plan,’ the report added.
The outlook for Pakistan’s current account balance remains a source of concern, but it is hoped that some upside on strong worker remittances and a possible recession in the global economy, the report said. Although data for the first four months of FY12 shows a current account deficit of $1.6 billion, it is attributed that this to temporary events because of bulky oil payments and a seasonal pause in remittances in September 2011, and an engineered shortage of hard currency in the parallel forex market.
The market is over-reacting to Pakistan’s foreign debt payments in FY12. One must realize that while repayments on the IMF’s $8.9 billion SBA will start this fiscal year, outflows are only $1.4 billion and are scheduled for the latter half of the fiscal year, the report pointed out.
SBP estimated that a current account deficit of 1.5 to 2.5 percent of GDP, which is relatively small given our past performance, it said, however adding that the financing of this current account deficit could be challenging.
On the monetary policy side, SBP report said, the sharp cut in the discount rate in FY12, has surprised the market.
With inflation easing somewhat and banks increasingly inclined to place funds with the government, the degree of crowding out of the private sector required policy intervention’ it said, adding that although SBP is still watchful to ensure that lending rates do not become negative in real terms.
SBP identified a window of opportunity, whereby private investment and employment generation would be given due importance. There was also a need to halt the growing dominance of debt servicing in the federal budget.
Courtesy www.dailytimes.com.pk