Upbeat forecast: Inflation down, growth looks up, says Shaikh

Highlights efforts to stabilise currency exchange rate, curtail fiscal deficit, spur investment.

ISLAMABAD:

The economy is expected to grow by 4.2% during the current fiscal year 2011-12, Finance Minister Dr Abdul Hafeez Shaikh informed fellow legislators on Friday.

According to the Economic Survey of Pakistan, the economy grew by a lackluster 2.4% in 2010-11, against a target of 4.5%.

In his written response during the National Assembly question-hour session, Shaikh informed the lower house of parliament that in the current year, the agriculture sector is expected to grow by 3.4%, manufacturing 3.7% and services sector by 5%.

Shaikh’s responses were read out by Minister for Textile and Industry, Makhdoom Shahabuddin.

Reining in inflation

Inflation rate in October 2011 is 11%, compared to 15.3% in October last year, the finance minister said in his response.

The government has taken a number of measures to contain inflation, he said, adding that it would be brought down from double-digits to single-digit by the end of 2011.

Allocation to the Annual Public Sector Development Programme for 2011-12 has been increased to Rs730 billion, he said, adding that it is 58% higher than last year’s revised allocation of Rs462 billion.

Exchange rate fluctuations

The rupee has cumulatively depreciated by 28%, between March 2008 and November 2011, against the US dollar, the finance minister said.

Large trade deficit due to higher demand for imports and rising international commodity prices, particularly oil, is the main reason for the depreciation of exchange rate, the minister said. In addition, foreign capital and financial inflows have also plummeted due to both, the global financial crisis and the deteriorating law and order situation in the country, he added.

To stabilise the exchange rate, the State Bank took a host of measures, including raising key interest rate by 5% cumulatively in 2008, gradual withdrawal of market support for oil payments since 2009 and other measures to discourage import of non-essential and luxury items, he added.

Curtailing fiscal deficit

The Federal Bureau of Revenue (FBR) has intensified its efforts to fully document the economy and broaden the tax net. The FBR has set a revenue collection target of Rs1,952 billion for the current fiscal year, he said.

Various austerity measures are being taken, besides rationalising the subsidy regime, to reduce the fiscal deficit, the minister said. A comprehensive plan to restructure the public sector enterprises is among them, he added.

Spurring investment

For promotion of investment in the country, 47 bilateral investment treaties have been signed with different countries, the minister said, adding that a special economic zones bill has been prepared which envisages five to ten year income tax exemption and duty-free import of machinery.

Besides, international conferences and exhibitions are being organized, both at home and abroad, to market investment opportunities, he added.

In response to a question regarding flood-affected areas in Sindh, the minister said they have been declared ‘disaster zones’ and loans of affected farmers in those areas will be waived off.

Published in The Express Tribune, November 19^th, 2011.