Encouraging sign: 2013-14 was a better year for economy: SBP

Central bank’s annual report points out improvements

ISLAMABAD:

The State Bank of Pakistan (SBP) says in its annual report released on Wednesday that fiscal 2013-14 was a better year for the country’s macro-economy.

The report on the state of the economy during 2013-14 highlights a tangible improvement in foreign exchange reserves, unprecedented appreciation of the rupee in early-March, reduction in the fiscal deficit, lower-than-expected inflation, improvement in private-sector credit and a relatively contained current account deficit as the ‘most notable developments’ in the previous fiscal year.



“With the start of a new International Monetary Fund programme, external inflows from other international financial institutions also began after a gap of almost three years,” the report says, adding that it helped stem the gradual depletion of SBP’s foreign exchange reserves.

Moreover, the $1.5 billion inflow into the Pakistan Development Fund in February/March contributed to the release of pent-up inflows that helped stabilise the rupee, it says.

The SBP states that the fiscal deficit at 5.5% of GDP was significantly lower than both the 2013-14 target of 6.5% as well as the overall trend in the past three years. “In our view, there was a concerted effort on the part of the government to contain expenditures and generate additional revenues. But the one-off factors, like the inflow into the PDF and the government delay in paying off the circular debt in 2013-14, also played their role,” states the report.

“The above-target mobilisation from the Eurobond and the successful divesture of UBL shares, coupled with a smaller underlying fiscal gap, sharply reduced government borrowing from the banking system, especially the SBP,” it adds.

The report further says that the increase in electricity and gas tariffs was smaller than expected initially and the primary source of inflation in the first quarter of 2013-14 – perishable food items – had been subsided by December 2013.

Although the market’s inflation outlook had eased significantly by early 2014, the SBP opted to pursue a cautious monetary policy driven by concerns about the external sector, and possible pressure on the rupee.

“This policy stance appears to be vindicated, as it managed to curb M2 growth to 12.5% against 15.9% growth in 2012-13 and yet was able to support a significant increase in private-sector credit growth last seen in 2007-08,” the SBP report says. It adds that public-sector enterprises continue to be a fiscal burden on the federal government.

Published in The Express Tribune, December 11^th, 2014.