The Ministry of Finance on Monday released a report titled ‘Review of the Economic Situation (July-March 2008-09)’, which notes that after endorsement of the $7.6 billion economic stabilisation programme by the International Monitory Fund (IMF), the economy got confidence back.
Signs of improvement in economic variables such as inflation stabilisation, foreign exchange reserves build-up, import compression, and net zero government borrowings from the State Bank of Pakistan (SBP) by end of April is evident, the report says.
However, global financial crisis and extremely vulnerable security environment at home have added risks to the economy.
The trade data for February and March this year hints at imminent risks to the external sector. The report says external sector data for the last quarter (April-June) will be a real reflection of the impact of global financial crisis on the economy. The economic growth target at around 2.5-3 per cent is still gettable in the given circumstances.
The massive negative growth in the large-scale manufacturing (LSM) for January and February this year may not likely to persists in the remaining four months of the current fiscal year, but still LSM growth will remain hostage to acute energy shortages and demand shrinkage in the export based industries.
AGRICULTURE: Agriculture has been facing acute irrigation water shortages and the water-intensive kharif crops sugarcane and maize fell short of the target and depicted negative growth of 18.5 and 7.5 per cent, respectively.
However, cotton and rice have registered positive growth of 7.3 and 13.5 per cent, respectively. The combined weight of sugarcane and maize in overall agriculture is 6.2 per cent while that of cotton and rice is 13 per cent.
The report says that Rabi season started with estimated water shortages of 31.6 per cent, however, widespread rainfall between December and February had positive impact on the outlook for the Rabi crop.
Wheat with its 12.7 per cent weight in overall agriculture is estimated to post 7.8 per cent growth over the last year.
Disbursement of credit to agriculture sector by commercial and specialised banks has increased by Rs13.3 billion by 9.6 per cent year-on-year to Rs151.9 billion during the period under review from Rs138.6 billion in the corresponding period of last year.
The crop sector is projected to surpass the growth target. The livestock sector is buoyant because of enormous price incentive in the sector.
All livestock products witnessed increase in prices and thus the target of 3.2 per cent will be achieved. The demand for livestock products is growing at phenomenal pace. The agriculture sector is likely to achieve its growth target of 3.3 per cent.
SERVICES: The services sector exhibited resilience to fluctuations in the economic activities. The foreign direct investment (FDI) inflows in the telecommunications, financial businesses and personal services have reached a level of saturation in the first nine months.
PRICES: Food inflation is estimated at 28 per cent during July-March as against 13.8 per cent in the comparable period of last year. Although food inflation has eased during the course of the current fiscal year, the report says ‘it remains painfully high and remained a major cause of concern’.
‘This can be attributed to the stubbornness in prices of some key commodities such as edible oil, pulses, rice, milk, sugar, poultry, meat, wheat, wheat flour, and fresh vegetables,’ the report observes.
On the other hand, non-food inflation stood at 19.2 per cent, against 6.3 per cent in the corresponding period of last year. Non-food inflation has remained persistently around 18-20 per cent throughout this year as the transport group, fuel and lighting group and house rent index have remained high.
ASSETS: Net domestic assets (NDA) have increased by Rs307 billion as compared to increase of Rs627.5billion in last year. However, it is showing an increase of 7.6 per cent in stock during this period, whereas, last year the growth in stock was 20.4 per cent in the comparable period.
Net foreign assets (NFA) have recorded a contraction of Rs263.9 billion against the contraction of Rs356.4 billion in the comparable of last year.
Government borrowing for budgetary support has recorded an increase of Rs240.5 billion as compared to Rs336.0 billion in the comparable period of the last year. The government has over performed against freezing the net borrowing from SBP at Rs257 billion in 2008-09 and the SBP financing has shown a net increase of Rs103.3 billion and financing from scheduled banks witnessed a net increase of Rs137.2 billion during July 1, 2008-April 18, 2009.
DEBT: External Debt and Liabilities (EDL) stood at $49.7 billion or 30.7 per cent of projected GDP for this fiscal year. This is higher than end-June 2008 stock of $46.3 billion or 27.6 percent of GDP.
The EDL grew both in absolute and relative terms during July-December period but witnessed some correction in the third quarter. Almost all categories of EDL barring Paris Club, Eurobond and military, have witnessed increase.
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