Some optimism nonetheless
The government won’t probably meet its growth target but would meet its inflation target. That was the central bank’s forecast in its first quarterly report for the current fiscal year. Three quarters too soon to be calling this out? Not really, apparently, with the State Bank certain that the increasing prices of fuel in the international markets, coupled with the incessant floods we have seen last year, will throw our 4.2 per cent growth figure out of the realm. But shouldn’t all that affect the inflation projections as well? Yes, but the central bank credits the government’s rather impressive restraint in borrowing from it as the reason inflation would be kept in check. It still isn’t over till its over; we’ll hold out on making a judgment of our own on this front, specially when the throes of fiscal desperation has forced governments, in the past, to borrow from the devil himself in Faustian deals, what to speak of its own central bank.
The government is borrowing heavily, however, from the private banking sector, crowding out private investment, further hampering GDP growth prospects. It is set to let the fiscal deficit target slip away as well; the SBP does not think receipts figures are going to match those that were predicted. True, the tax revenue receipts did pick up, with the FBR managing to raise its collections by 30 percent, but other assumptions are a little ambitious. For instance, the Coalition Support Fund, especially in these times of tense relations with the US, should be counted on the books only when we have that cash firmly in our hands. Another assumption, centring around surpluses handed over by the provincial governments, are also deemed too ambitious by the SBP.
While it is true that price hikes in food items and other agricultural goods lead to general inflation, these very increases are also engines of growth, specially for our rural, peripheral areas. Even diminutive growth rates are impressive when looked at in the context of the devastating floods of this year and the last. These rates were guaranteed because of this global inflation. Things can only get better on that front. The idea now is for the government to get even more serious about tax reforms, stick to monetary policy discipline, and get its act together on the power front.