Karachi: State Bank of Pakistan has shown satisfaction over the present economic situation of the country, saying its growth rate is 3.7 percent during FY12 – higher than the 3 percent realized in the previous year, but less than the target of 4.2 percent.
The performance is 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, it mentioned in its third quarterly report “The State of Pakistan’s Economy” released on Friday.
This growth has also been more broad-based with a larger contribution from the commodity producing sectors compared to FY11. Moreover, as in the past, growth has been driven by a sharp increase in domestic consumption (both private and public), which was partially offset by a decline in domestic investment and external demand.
The continuous decline in investment for the fourth consecutive year, is a source of growing concern, as it will stifle the long term growth of the economy.
The energy shortages continue to constrain growth and conservation efforts alone cannot bridge the shortfall. During Jul-Mar FY12, power generation recorded a marginal increase, with no notable rise in gas supplies.
At the same time, and despite efforts to resolve the circular debt problem, liquidity constraints in the power sector have worsened due to higher international oil prices.
While these challenges will continue to shape the outlook for the economy, it is important that GDP data should reflect the changing nature and composition of the country’s economic activities. Pakistan Bureau of Statistics (PBS) is already in the process of rebasing the national income accounts.
The current information suggests a budget deficit of 4.3 percent of GDP for Jul-Mar FY12, and it appears that the budgetary gap for the full year will exceed the revised target of 4.7 percent. Overall revenues are lower than expected.
Furthermore, though the growth in current expenditure is lower compared to the previous year, the government has enhanced its development spending. While such spending should improve the country’s long-term growth prospects, this also creates financing pressures. At the same time, despite efforts to reform public sector enterprises, the operational efficiency of key PSEs (e.g. PIA, Pakistan Railways and Pakistan Steel) has not improved. This continues to add to the country’s fiscal burden.
Pakistan’s economy has shown some recovery in terms of GDP growth though, the key macro indicators still remain weak specifically the deterioration in the external account has been less adverse than expected, but financing the current account deficit remains challenging; and lastly, despite strong growth in tax collection, there are pressures on the fiscal account.
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