State Bank of Pakistan (SBP) and Ministry of Finance gave contradictory estimates to the Senate Standing Committee on Finance about the fiscal deficit, which the central bank projected over 6 per cent whereas Finance Ministry claimed would be contained at 4.7 per cent of GDP during the current fiscal year.
Foreign exchange reserves might fall by $5 billion
The central bank warned that in case the projected foreign inflows did not materialise during the current fiscal the foreign exchange reserves might fall by $5 billion from current level of $17 billion. It said the foreign exchange reserves were likely to register a sharp fall during the second half of current fiscal year due to large repayments of external debt, including $1.2 billion of the IMF loan. The meeting of the committee chaired by Senator Ahmad Ali was briefed on the State of Economy by the Governor SBP Yaseen Anwar and Secretary Finance Dr. Waqar Masud Khan. Briefing the committee, Governor SBP said that if projected foreign inflows did not materialise then the country’s fiscal deficit will be over 6 per cent of GDP at the end of the current fiscal year. However Secretary Finance Dr Waqar Masud claimed that the fiscal deficit would be contained at 4.7 percent of GDP. He said estimates of fiscal deficit were 2.5 per cent of GDP during the first half of current fiscal year.
Pak rupee depreciates by 4.4pc against US dollar
The committee was informed by SBP that the pressure on foreign exchange reserves and exchange rate has already increased, and reserves have declined by $1.2 billion till December 31. Pak Rupee has depreciated by 4.4 per cent till Dec 31, against US dollar. The meeting was informed that inflation was declining but still price trends in cotton and oil prices were severely affecting the external current account. Net capital and financial flows are inadequate to finance the current account deficit. The budget deficit was better than last year but not in line with annual target. Financing of the budget deficit is tilted towards the banking system, complicating liquidity and monetary management.
YoY inflation at 9.7 per cent
Slowdown in exports and energy shortages could hamper GDP growth, which was projected at 3.8 per cent as compared with the budgetary target of 4.2 per cent. The growth in consumption appears to be declining due to inflation. Investment declined in last fiscal year and trend appears to continue this fiscal year. The year-on-year inflation in December 2011 was 9.7 per cent; but the full year inflation is expected to remain close to the target of 12 per cent. Inflation in second half of current fiscal year is expected to increase on account of adjustments in administered prices and exchange rate changes. SBP proposed that to reduce fiscal deficit measures to increase the tax revenues were required as tax to GDP ratio was less than 10 per cent in Pakistan. Overall expenditures were under control, but the untargeted subsidies were still a major burden on current and development expenditures, which are crucial for productive capacity and growth.
Government borrowing Rs648 billion this year
The meeting was informed the government’s borrowing from banks was Rs648 billion till December 15, 2011 as against Rs96 billion in the corresponding period last fiscal year. Even after excluding Rs391 billion settlement of circular debt, borrowings were high. The deterioration in external account balance and increased borrowing from banks squeezed the money market rupee liquidity increasing pressure on the money market overnight repo rate. SBP mentioned that the public debt to GDP ratio was 59 per cent of GDP and the total foreign debt has reached to $61.5 billion by December 31, 2011. Secretary Finance said the government plans to issue Euro bonds of $500 million by March this year whereas International Sukuk Bonds of $500 million would also be launched later this year. He said the outstanding payment of $800 million from UAE owned Etisalat would be received by third quarter of current fiscal year. He said the auctioning of three 3G licenses would help earn $800 million. He said the total receivables of CSF from USA were $2.5 billion and it did not include billing after May 2011.
Chairman FBR informed the committee that they have referred 21 cases to National Accountability Bureau, including one against former member customs Munir Qureshi, under the NATO container case in which a loss of Rs55 billion occurred to the national exchequer. President of Bank of Punjab Naeemuddin Khan informed the committee that they would be soon auctioning the confiscated property including jewelry of Shaikh Afzal of Harris Steel Mill in Rs8.4 billion scam.
