The government on Thursday claimed that due to better crop position and positive growth in LSM sector, the growth target could end up close to 4 per cent as due to government’s facilitation in the agriculture sector, improvement in supply situation, reduced budget deficit and borrowing from SBP has helped bring inflation down to single digit of 9.7 per cent in December 2011.
Giving an overview of the current economic situation, Finance Secretary Dr Waqar Masood informed the meeting of the Monetary and Fiscal Coordination Board, held under the chairmanship of Finance Minister Dr Abdul Hafeez Shaikh, that food and non-food inflation also stood at 9.5 per cent and 9.9 per cent respectively. “WPI and SPI also are in single digit at 8.3 per cent and 3.0 per cent respectively. Core Inflation also declined but remained at 10.1per cent.”
Other members of the Board present in the meeting were Minister for Commerce Deputy Chairman Planning Commission and Governor SBP. The Finance Secretary said the external sector has witnessed positive growth since remittances reached to $6.3 billion, witnessing an increase of 19.5 per cent as compared to last year, while the exports reached $12.1 billion in H1FY12 which is 9.1 per cent higher than last year and imports reached $19.7 billion. Likewise, he said, the current account balance registered surplus of $160 million in December 2011. He said the revenue collection is showing remarkable growth of 27per cent and stood at $840.1 billion in the first half of the current financial year. The government is also working on expenditure management strategy, austerity measures, reforms in public sector enterprises which will have a positive impact on the economy. Expenditure in first six months was only 45 per cent of total expenditure.
He said the improved revenue and expenditure performance have led to containment of fiscal deficit at 2.6 per cent of GDP against the target of 4.7 per cent and actual of 2.9 per cent in the first half of last year. This performance is more impressive when viewed in relation to provincial surpluses, which were negative Rs5 billion compared with Rs.76 billion (0.4per cent of GDP) in the H1 of 2010-11.
On the monitoring and fiscal side it was noted that SBP has reduced the policy rate to 12 per cent which is helping investment in private sector as credit expansion to private sector has increased to Rs.169.3 billion against Rs.123.2 billion in first half of FY 11. The SBP borrowing of Rs.120 billion at the close of first half was temporary and will soon be retired.
The Secretary said net foreign financing to budget has been positive (Rs20 billion) but more foreign resources were required to reduce burden of government borrowing on domestic sector. The rising international fuel prices was also highlighted as a concern which may affect balance of payment and could deteriorate the external position.
The Board noted that the economic outlook of Pakistan was stable despite challenges. The renewal of growth, decline in inflation, contained fiscal deficit, healthy BOP position and continuation of reforms especially in the power sector have contributed to this stability. The challenges are energy shortages and mobilisation of foreign financing. The key foreign flows relating to auction of 3G license, CSF receipts and privatisation proceeds will be realized during the second half and cover the foreign financing gaps. The Board also noted that IMF’s $1,2 billion which will be returned in H2 are fully budgeted.
The Finance Minister in his opening remarks stated that it is an important meeting to share assessment of the current economic situation and bring consistencies in economic targets and see how we can adopt optimal utilization of policy measures. The Finance Minister expressed the hope that the deliberations of the Board will lead to better economic coordination and that the challenges facing the economy will be coped in a coordinated manner by all the institutions involved.
