Under scrutiny: Government to keep tight monetary and fiscal policies

Annual economic growth target of 5.1% under threat

ISLAMABAD:

The federal government has decided to maintain tight monetary and fiscal policies in the remaining seven months of the current fiscal year in an effort to stabilise the economy, but this will heighten the chances of less-than-targeted growth for a second consecutive year.

The decision was taken by the Monetary and Fiscal Policies Coordination Board, which met here on Tuesday with Finance Minister Ishaq Dar in the chair.

Because of the cautious monetary and fiscal stance, the annual economic growth will be around 4.3% against the target of 5.1% for the current fiscal year. It will be the second year in a row when growth will stand below target.



Though the government has not yet officially released figures for the last fiscal year, the growth is believed to have remained far below the target of 4.4%.

The board was of the view that it was not the right time to adopt expansionary monetary and fiscal policies, one of its members told The Express Tribune.

It was also decided that expansionary policies would be put in place from the new fiscal year, commencing July next year, he said.

“Results of the first quarter (July-September) are not very good and the economy is still in an incubator,” said another board member. Considering all the economic variables, he added, it was too early to change the stance based on provisional results.

Though it was mainly because of the seasonal effect, the monetary expansion in the first quarter had turned negative. Furthermore, the boom in the stock market could not be termed an improvement in overall economic conditions, said the board member.



The meeting was attended by State Bank of Pakistan Governor Ashraf Wathra, Federal Minister for Planning and Development Ahsan Iqbal and Commerce Minister Khurram Dastgir Khan.

The board met a few days after the conclusion of talks between Pakistan and the International Monetary Fund. The lender asked Pakistan to continue with a cautious monetary policy despite inflation dropping to a 17-month low at 5.8% in October.

The official said the slowing down in the pace of inflation was also because of the change in base year. “Authorities may not immediately cut the discount rate and will adopt a wait-and-see policy on the monetary front.”

Officials said the meeting was told that in the face of tight monetary and fiscal policies, the economic growth was expected to stand at 4.3%. Some board members were of the view that the growth was still stagnant.

The SBP was of the opinion that after a reduction in the oil import bill, pressure on the exchange rate would ease and the rupee would likely stabilise very soon against the US dollar.

In a bid to stir the economy, the Planning Commission called for paying attention to promoting investments and savings, the areas where the government had been unsuccessful so far.

According to a press release, Finance Secretary Dr Waqar Masood told the meeting that the government was following a prudent fiscal policy, as a result of which fiscal deficit had come down to 1.2% of gross domestic product (GDP) or Rs348 billion in the first quarter.

Dr Ishrat Husain, a member of the board, underlined the need for implementing structural reforms as well as facilitating the private sector, which would ensure sustainability of economy, according to the finance ministry. He sought tariff reforms and reduction in the cost of doing business.

The commerce minister sought improved supplies of electricity, gas and water for increasing exports, which had turned negative in the first quarter.

Published in The Express Tribune, November 12^th, 2014.

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