Time to move on to the next base, sweetie

SBP reminds its sweetheart PBS to rebase national income accounts and issue quarterly GDP estimates. And it also reminded mankind that contrary to popular opinion, energy shortage and lack of investment were in fact pretty perilous for the economy. Elsewhere, there was the reiteration that the economy would grow by 3.7pc in FY12, and so there’s a fair chance that we might eventually get to live happily ever after…
Foreseeing the troubled economy growing by a “notable” 3.7 percent in the outgoing FY12, the central bank stressed the pressing need for rebasing the country’s national income accounts in synchrony with the changing nature and composition of current economic activities.
Further, while foreign financing had almost dried up during the July-MarchFY12, the cash-strapped government borrowed a massive Rs 847.5 billion from domestic sources – primarily the banks – to bridge the 4.3 percent budget deficit the country faced during the quarter in review. The borrowed amount is higher by Rs 147 billion or 21 percent than the Rs 700.1 billion the government had raised during the corresponding period of FY11. The huge fiscal deficit, the bank said, inflated the government’s domestic debts by a whooping Rs 1.2 trillion to Rs 7.2 trillion during the review period.
The State Bank said the available data suggested that the budgetary gap for the full year, July-JuneFY12, would exceed the revised target of 4.7 percent and that the overall revenues had been lower than expected.
SBP, in its Third Quarterly Report for FY12, dubbed the continuous slump in foreign and domestic investment, acute energy shortages and the persistently high fiscal deficit as major risks to the macro-economy.
These negatives, the bank said, were a source of growing concern for the economic mangers and had all the potential to directly stifle long-term growth prospect.
REBASING INCOME ACCOUNTS: The central bank said it was important that GDP data should reflect the changing nature and composition of the country’s economic activities. Adding that Pakistan Bureau of Statistics (PBS) was already in the process of rebasing national income accounts. “We expect that PBS would also consider releasing GDP estimates on a quarterly basis, which is now a norm in emerging markets. It will help get a more accurate and timely picture of the real economy, which will allow for more proactive policy corrections,” the SBP said.
ECONOMIC GROWTH: About the economic growth, the bank said the expected 3.7 percent growth during FY12 was higher than the 3.0 percent realised in the previous year, but less than the target of 4.2 percent. Nevertheless, it said, this performance was notable given the considerable damage to the cotton crop due to floods in August 2011; ongoing energy shortages; the rise in international oil prices; and security concerns.
WEAK MACRO INDICATORS: “Although Pakistan’s economy has shown some recovery in terms of GDP growth, the key macro indicators still remain weak,” the SBP said. The central bank said this 3.7 percent growth rate had also been more broad-based with a larger contribution from the commodity producing sectors compared to FY11. Moreover, as in the past, growth had been driven by domestic consumption, both private and public, which was partially offset by a decline in domestic investment and external demand. The State Bank said though the growth in current expenditure was lower compared to the previous year, the government had enhanced its development spending which should improve the country’s long-term growth prospects, besides creating financing pressures.
PSEs BURDENING BUDGET: The SBP expressed concern over operational efficiency of key Public Sector Enterprises (PSEs) that, it warned, were adding to the cash-strapped country’s fiscal burden.
FISCAL DEFICIT FINANCING: While external financing dried up the government the government relied more on domestic sources to finance the fiscal gap and borrowed Rs 847.5 billion in Jul-Mar FY12 against Rs 700 billion of last year. “Such borrowing is inflationary and a risk to macro-stability,” the regulator warned. Currently, two acts, namely the Fiscal Responsibility and Debt Limitation (FRDL) Act (2005) and the newly amended SBP Act, provide guidelines on overall debt stocks and borrowing from the central bank, respectively, the SBP said. The government’s greater reliance on short-term borrowing, the SBP said, was creating liquidity management problems for the central bank, and rollover and interest rate risks for the government.
“LESS ADVERSE”: The SBP said developments in Q3-FY12 in external sector were less adverse than expected and that larger inflows of remittances and a lower trade deficit explained this relative improvement.
The current account deficit during Jul-Mar FY12 was $ 3.1 billion, compared to a deficit of $ 10.0 million in the corresponding period last year, it said.
FOREIGN INFLOWS: More importantly, the expected inflows under Coalition Support Fund (CSF), the auction of 3G licenses, and arrears from PTCL privatisation, did not materialise during the quarter.