ISLAMABAD – With the large-scale manufacturing and agriculture sector both recording a negative growth rate during the first quarter of the current financial year, the Senate Standing Committee on Finance was cautioned on Tuesday that the continued delay in implementation of key economic reforms could further strain the economy.
The Senate body on finance met under the chairmanship of Senator Ahmed Ali. Minister of State for Finance Hina Rabbani Khar, State Bank of Pakistan (SBP) Governor Shahid Hafeez Kardar and Finance Secretary Dr Waqar Masood Khan briefed the meeting on the country’s economic conditions. The SBP governor said the fiscal deficit could reach six percent of the GDP or Rs 1 trillion by the year end.
M-2 growth during the first quarter of the current fiscal had risen by 6.2 percent or Rs 360.3 billion, as compared to 4.2 percent or Rs 237 billion in the same period last year. “If timely reforms are not taken, the external financing could be jeopardized,” he said. The government’s fiscal position has weakened and the monetisation of the deficit has further increased inflationary pressures. To overcome the crisis, broadening the tax base was imperative.
He said the continued deficit financing had made interest rate increases unavoidable, these could have been higher if borrowing was directly from the commercial banks. “The financial account, however, remains a concern, especially if the fiscal deficit is not controlled, GST and power sector reforms are not implemented and subsidies are not abolished,” he said. Kardar said government expenditures had risen by nine percent, while revenue collection had increased by seven percent.
“The government has borrowed Rs 374 billion from central bank, while loans of Rs 366 billion for commodity operation and Rs 368 billion for public sector enterprises (PSEs), Rs 20 billion monthly subsidy on power tariff and Rs 29 billion per annum subsidy on fertilizers are further pressing the economy,” he added. The SBP governor said total debt had increased from 65.2 percent of the GDP or Rs 8.306 trillion in FY09 to 66 percent of GDP or Rs 9.685 trillion in FY10.
The total debt and liabilities increased from 68.7 percent of GDP of Rs 8.746 trillion in FY09 to 69.5 percent of GDP or Rs 10.196 trillion in FY10.
