News
Wednesday, June 02, 2010
State Bank paints gloomy picture of economy
* Central bank’s third quarterly report says agricultural growth expected to remain below target
* Overall external account position to remain vulnerable despite sharp decline in current account deficit
* Fiscal deficit to be much higher than earlier estimates
* Country has to move aggressively to attract fresh investmentBy Mushfiq Ahmad
KARACHI: The State Bank of Pakistan on Tuesday painted a gloomy picture of the country’s economic condition, saying the agriculture sector’s growth was expected to remain below target and the fiscal deficit mark was going to be much higher than earlier estimates.
The report also said that the overall external current account position would remain vulnerable.
The SBP revealed the figures in its third quarterly report on the country’s economy.
The report said the agriculture sector was expected to post a below-target growth rate, mainly due to water shortage and unfavourable weather conditions during the ongoing year.
Contrary to earlier expectations that minor crops would return strong growth figures due to switch over of area from major to minor crops, recent information suggests that most of the minor crops also suffered due to lesser rains during the winter.
While agriculture produce contributed significantly to exports, the trend resulted in high domestic prices, even of crops returning surplus harvest.
Despite that, the report said that the fiscal performance remained lacklustre. The SBP estimated the country’s fiscal deficit to arrive at between 5.1 and 5.6 percent of the GDP. It said the impact of high fiscal deficit was compounded by shortfall in external receipts.
Vulnerability: The SBP said the overall external account position would remain vulnerable despite a sharp decline in the current account deficit, since financing receipts had plummeted.
The report reiterated that the sustainability of the current account depended on the country’s ability to finance the deficit, preferably through non-debt-creating inflows.
The report said projections for the current account deficit indicated an improved picture, with the deficit now expected to fall even lower between 2.2 and 2.8 percent of GDP during the FY10, substantially lower from earlier forecasts of 3.2–3.8 percent and the FY09 deficit of 5.7 percent of the GDP.
“This improvement is mainly due to an impressive performance of exports and workers’ remittances,” the report said. However, the SBP pointed out that as far as inflation was concerned, resurgence in inflationary pressures during second half of the FY10 were anticipated.
The report added that the annual average consumer price index (CPI) inflation would be slightly higher than estimates, arriving in the range of 11.5-12.5 percent during the FY10.
Provisional estimates of the National Income Account Committee suggest that the country’s real GDP growth will rebound to 4.1 percent in the current fiscal year, compared with 1.2 percent last year.
The growth would mainly be a result of the above-target growth of livestock and the large-scale manufacturing (LSM) and services sectors.
The SBP said although the fiscal deficit was expected to be above the target, borrowings from the central bank have so far been less than in previous years.
The SBP said that after posting a modest recovery in the first half of the FY10, the LSM growth gathered further pace in the year’s third quarter. The return of commercial banks towards consumer financing helped strengthen the demand for consumer durables, especially automobiles, despite rising cost pressures, it said.
It said the main factors behind pressures on fiscal accounts were increasing current expenditure and a low tax-to-GDP ratio.
The SBP added that the country had to move aggressively to attract new investment by implementing additional reforms to increase economic efficiency and improve business environment.
The report also pointed out that the country’s trade deficit contracted by 13.9 percent during the July-April period of the FY10 against 15.6 percent decline recorded in the same period last year.
Courtesy www.dailytimes.com.pk