ISLAMABAD – Despite several domestic and international challenges, the country’s economy is gradually moving towards stability, as suggested by economic indicators.
Pakistan’s foreign exchange reserves reached an all time high of $17.38 billion, triggered by massive remittances sent by overseas Pakistan, while other economic indicators have also shown positive growth during the period, sources in the Ministry of Finance (MoF) said.
The government has been focusing on the ‘New Growth Strategy’, with an aim to raise growth above its historical average of 4.9 percent, sources said. They added that growth should be market-led and not government-led. “Private sector should be the main growth driver, while the public sector should ensure timely implementation of market reforms to promote competitiveness, they added.
On monetary front, the government envisaged a significant tightening of fiscal and monetary policies to bring down inflation and to strengthen the external position, adopting several structural measures in the fiscal and financial sectors including strengthening of social safety net. Sources said that, keeping in view the risk of inflationary pressures, the State Bank of Pakistan raised its policy rate from 12.5 percent on May 2010 to 14 percent on 30 November 2010. They stated that the rate, at present, had remained unchanged due to inflation risk and economic growth.
The source said that country’s current account deficit contracted sharply by 62.1 percent, mainly due to contraction in the trade account and rise in the invisible account surplus during FY10. Consequently, the country’s foreign exchange reserves reached an all time high. Improvement in inflow of remittances through Pakistan Remittances Initiative (PRI) stood at $6.12 billion during July-January 2011 compared to $5.19 billion during the same period of last year.
Sources termed the surplus of $26 million in external current account, during July-December (2010-11), as marked improvement over earlier projections. Sources said that economic slow down in 2008-09 had forced the government to enter a Stand-By Agreement (SBA) with International Monetary Fund, which benefited the country’s macroeconomic growth – as evident from sector-wise growth.
The agriculture sector grew from two percent in FY09 to 3.8 percent in FY10, while the manufacturing sector grew from 5.2 percent in FY09 to 5.6 percent in FY10. The real GDP augmented from 1.2 percent in FY09 to 4.1 percent in FY10, sources added. In order to maintain fiscal discipline, the government focused on prudent expenditure management and better resource mobilization, through introduction of the reformed General Sales Tax (GST), submitted to the Federal parliament.
A major development, sources said, was announcement of the seventh NFC award after a gap of 19 years. Besides, the government introduced austerity plan, restructured public sector enterprises, brought in power sector reforms and evolved a debt management strategy. Focusing on agriculture development, the government introduced crop support price policies which helped the economy.
Import of fertiliser increased by 133 percent, hence the total availability of fertilizers also increased by 25.3 percent during FY10 from 4.4 percent in FY08. The government also allowed import of agriculture machinery at zero tariffs to facilitate farmers, while it launched a project “Land and Water Resources Development Project” to bring more land under cultivation and help alleviate poverty.
