Low future expectations: GDP growth to remain below target, SBP report reveals
Central bank’s projection higher than IMF’s forecast for FY14.
According to the report, the lack of external inflows also created challenges in financing the relatively small current account deficit. PHOTO: FILE
KARACHI:
The State Bank of Pakistan (SBP) has said the growth rate for the gross domestic product (GDP) will remain below target in the current fiscal year.
In its annual report on the state of the economy for 2012-13 released on Wednesday, the SBP said real GDP growth rate in fiscal year 2014 (FY2014) is likely to be 3%-4%. In contrast, the annual plan for fiscal 2014 sets a GDP growth rate target of 4.4%.
The report said the factors that supported the recovery in large-scale manufacturing should continue to sustain industrial growth in FY2014, adding that the expected launch of 3G services is likely to boost value addition in telecom services.
As for agriculture, the central bank stated that growth in this sector is likely to remain below its target of 3.8%, as recent rains have damaged the upcoming rice and cotton crop in Punjab.
However, the SBP’s projection of GDP growth of 3%-4% for FY2014 is higher than the IMF’s growth forecast of 2.5%-3% in the same period.
The budget for FY2014 envisages a fiscal deficit at 6.3% of GDP, which assumes a Rs120-billion inflow under 3G licences, 27.8% growth in FBR tax revenues, Rs127.1 billion reduction in subsidies and a combined provincial surplus of Rs23.1 billion.
“While the government appears determined to cut power subsidies quite aggressively, the FBR revenue target seems less credible,” the SBP stated, adding that the task ahead for the tax collection body is likely to be more challenging with subdued growth and a slowdown in imports. It also expressed its reservations about the prospect of achieving provincial surpluses because only Balochistan has so far shown a budget surplus for the current fiscal year in its budget documents.
Against the inflation target of 8% in FY2014, the SBP said it expects the Consumer Price Index (CPI) to hover around 10.5% and 11.5%; the CPI was 7.4% in FY2013.
SBP report said that challenges in managing public sector enterprises, expanding the tax net to untaxed or under-taxed areas, containing untargeted subsidies, tackling theft and leakages in the energy sector, revitalising the private sector and increasing documentation in the economy remained largely unaddressed during FY2013.
The report said that with inadequate external funding, the responsibility of financing the fiscal deficit fell entirely on domestic sources, specifically the banking system. The government borrowed Rs939.6 billion from commercial banks and an additional Rs506.9 billion from the SBP during FY2013. As a result, Pakistan’s domestic debt increased Rs1.9 trillion in FY13, a 24.6% increase from the preceding fiscal year.
According to the report, the lack of external inflows also created challenges in financing the relatively small current account deficit. The financial account recorded a net inflow of only $0.3 billion during the year compared to $1.3 billion last year, and $5.1 billion in fiscal 2010. Along with significant repayments to the IMF, this pulled down SBP’s liquid foreign exchange reserves to a 55-month low of $6 billion by end-June 2013, it said.
Published in The Express Tribune, January 16th, 2014.
The State Bank of Pakistan (SBP) has said the growth rate for the gross domestic product (GDP) will remain below target in the current fiscal year.
In its annual report on the state of the economy for 2012-13 released on Wednesday, the SBP said real GDP growth rate in fiscal year 2014 (FY2014) is likely to be 3%-4%. In contrast, the annual plan for fiscal 2014 sets a GDP growth rate target of 4.4%.
The report said the factors that supported the recovery in large-scale manufacturing should continue to sustain industrial growth in FY2014, adding that the expected launch of 3G services is likely to boost value addition in telecom services.
As for agriculture, the central bank stated that growth in this sector is likely to remain below its target of 3.8%, as recent rains have damaged the upcoming rice and cotton crop in Punjab.
However, the SBP’s projection of GDP growth of 3%-4% for FY2014 is higher than the IMF’s growth forecast of 2.5%-3% in the same period.
The budget for FY2014 envisages a fiscal deficit at 6.3% of GDP, which assumes a Rs120-billion inflow under 3G licences, 27.8% growth in FBR tax revenues, Rs127.1 billion reduction in subsidies and a combined provincial surplus of Rs23.1 billion.
“While the government appears determined to cut power subsidies quite aggressively, the FBR revenue target seems less credible,” the SBP stated, adding that the task ahead for the tax collection body is likely to be more challenging with subdued growth and a slowdown in imports. It also expressed its reservations about the prospect of achieving provincial surpluses because only Balochistan has so far shown a budget surplus for the current fiscal year in its budget documents.
Against the inflation target of 8% in FY2014, the SBP said it expects the Consumer Price Index (CPI) to hover around 10.5% and 11.5%; the CPI was 7.4% in FY2013.
SBP report said that challenges in managing public sector enterprises, expanding the tax net to untaxed or under-taxed areas, containing untargeted subsidies, tackling theft and leakages in the energy sector, revitalising the private sector and increasing documentation in the economy remained largely unaddressed during FY2013.
The report said that with inadequate external funding, the responsibility of financing the fiscal deficit fell entirely on domestic sources, specifically the banking system. The government borrowed Rs939.6 billion from commercial banks and an additional Rs506.9 billion from the SBP during FY2013. As a result, Pakistan’s domestic debt increased Rs1.9 trillion in FY13, a 24.6% increase from the preceding fiscal year.
According to the report, the lack of external inflows also created challenges in financing the relatively small current account deficit. The financial account recorded a net inflow of only $0.3 billion during the year compared to $1.3 billion last year, and $5.1 billion in fiscal 2010. Along with significant repayments to the IMF, this pulled down SBP’s liquid foreign exchange reserves to a 55-month low of $6 billion by end-June 2013, it said.
Published in The Express Tribune, January 16th, 2014.