Revised growth target still ambitious

The economy is more likely to grow by 2.5 per cent says an economist at Standard Chartered Bank Pakistan Limited.

KARACHI: The revised growth target gross of domestic product (GDP) set by the government at 2.8 per cent for fiscal year 2010-11 is still ambitious and the economy is most likely to grow by 2.5 per cent, Sayem Ali, an economist at Standard Chartered Bank Pakistan Limited, said.

The previous GDP growth target was 4.5 per cent.

“The revised growth target will depend largely on the scale of spending on reconstruction to be undertaken by the government,” Ali said in a research report.

The agriculture sector, which accounts for 21 per cent of GDP and 45 per cent of employment y, has suffered the most. The ministry of agriculture believes that nearly 30 per cent of the summer harvest has been destroyed, causing a loss of $3.2 billion.

Two main cash crops, cotton and rice, have been hit the hardest and that is likely to have a snowball effect on manufacturing and services industries. Textile, the biggest industry accounting for 60 per cent of all exports, will be affected by the damage to cotton crop.

The cost of relief, rehabilitation and reconstruction will be a significant extra burden on the government, the analyst said. “It is expected that the fiscal deficit will rise to 6.5 per cent of GDP in FY11, depending on the scale of flood damage and inflow of foreign grants. This will be positive for growth but at a very high cost.”

Inflation has also accelerated because of the weak fiscal position as the government financed its large deficits by printing money. The prospect of higher reconstruction spending has raised concerns about the government’s ability to limit its deficits and control inflation.

Published in The Express Tribune, October 1^st, 2010.