Economic Activity Shows Growth
Cautious Optimism: Pakistan’s government expects its economy to
pick up this year.
According to the State Bank of Pakistan’s third quarterly report for FY14 , the Pakistani economy “appears” to have turned a corner during the third quarter of FY14, and sentiments about the economy “seem” to have improved.
One may never know the answer to that question, for its always debatable as to what the SBP might actually be thinking. But, here are a few of its relatively concrete observations. “It must be said that these signs of improvements should not discount the challenges faced by the economy; and efforts for much needed structural reforms should continue,” the SBP said.
On the subject of LSM growth, the SBP said that it is not broad based. “This uneven growth can be traced to structural imbalances that need to be addressed,” the report said, while casting doubts over the ability to achieve full-year LSM growth of 5.3 percent estimated by the government.
The SBP says that total public debt (external plus domestic) has already crossed the limit of 60 percent of GDP, set by the Fiscal Responsibility and Debt Limitation Act (2005) for FY13 onward. “Hence, any addition to the external debt should at least be matched with an equivalent reduction in the domestic debt outstanding.”
In perhaps one of its most vocal statements, the SBP has shown serious concern over corruption in public spending. “The importance given to transport and construction at the provincial level is also intriguing. While the differences in sub-national development priorities can be attributed to individual provincial needs, a review of literature on the determinants of public spending provides another perspective,” the SBP said.
Citing a set of multi-year academic studies from across the world, the SBP said that the composition of government spending is often shaped by the degree of inefficiencies and wastages of financial resources in a country. The types of government expenditure that creates c opportunities for bribe taking and other types of rent seeking behav behaviour are often prioritized when governance is poor. “As a result result, investments in huge projects (build (buildings, highways, airports, etc.) attrac attract more public funds compared to soc social sector.”
O One study cited by the SBP prove proves that corruption plays an impor important role in distributing gover government spending between variou various sectors. “Specifically, it favou favours spending on defense, fuel, public services, law and order at the cost of o spending on social sector.”
Th This thesis surely seems familiar to Pakistan. Pak But, interestingly, going by this thesis, KPK and Punjab are competing head to head on possible corruption in government spending, whereas the oft blamed Sindh is faring better (see graph).
While SBPs third quarterly report talks about how rupees appreciation might affect remittances it fails to delve into on how rupee appreciation would impact Pakistans trade balance going forward.
The only thing the report said on the subject is that a part of the loss of competitiveness “could be offset by the availability of cheaper imported inputs, which most Pakistani exporters are dependent upon”. For a subject so complex and hotly debated in political and economic circles, one would expect the SBP to shed more light on it than just two lines.