A lack­lus­tre fis­cal re­port

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State Bank’s first quar­terly re­port for the cur­rent fis­cal re­leased on 17th Fe­bru­ary, 2015 con­tains an or­di­nary as­sess­ment of the econ­omy and is largely de­void of the in­ci­sive anal­y­sis our cen­tral bank is fa­mous for. There has been a marked im­prove­ment in the econ­omy dur­ing the sec­ond quar­ter of FY15, which the State Bank surely is likely to persist through­out the year. Global oil prices have slumped to a fiveyear low, which would help con­tain trade deficit, in­fla­tion dropped to the low­est level in 13 years, the IMF is now sat­is­fied with the progress on eco­nomic re­forms paving the way for fur­ther dis­burse­ments, gov­ern­ment had suc­cess­fully is­sued Sukuks in the in­ter­na­tional mar­ket and the coun­try is likely to get ad­di­tional fund­ing from the World Bank, ADB and through Coali­tion Sup­port Fund (CSF).

While dis­cussing the out­look of the econ­omy, the re­port main­tains that “Pak­istan’s ex­ter­nal sec­tor would ben­e­fit most from the decline in oil prices, as petroleum di­rectly makes up nearly 35 per­cent of our im­port bill.” Pos­i­tive out­look on the ex­ter­nal sec­tor and low in­fla­tion in the sec­ond quar­ter pro­vided room to the SBP to cut the pol­icy rate by 50 ba­sis points in Novem­ber and re­duce it fur­ther by 100 ba­sis points to a multi-year low of 8.5 per­cent in Jan­uary, 2015. How­ever, it might be chal­leng­ing to achieve the fis­cal con­sol­i­da­tion tar­get of 0.6 per­cent­age points in FY15. Rev­enue mo­bil­i­sa­tion by FBR so far is much less than the tar­get and a sig­nif­i­cant decline in oil prices may re­duce gov­ern­ment rev­enues from this source while in­ter­est pay­ments on the ex­pen­di­ture side will re­main strong. Im­por­tant re­forms are needed to re­duce the struc­tural com­po­nent of the fis­cal deficit. The gov­ern­ment had for­mu­lated a mid-term strat­egy to im­ple­ment fis­cal re­forms, rang­ing from im­prov­ing rev­enue gen­er­a­tion to pro­mot­ing pri­vate sec­tor par­tic­i­pa­tion in loss-mak­ing PSEs. Plans are un­der way to re­struc­ture Pak­istan Rail­ways, Gen­cos and Dis­cos so that th­ese could con­trib­ute pos­i­tively to eco­nomic devel­op­ment. Th­ese plans, how­ever, “should be fast-track, with a spe­cific fo­cus on their man­age­rial and op­er­a­tional in­ef­fi­cien­cies and their spillovers on the fis­cal sec­tor and the rest of the econ­omy.”

Even a cur­sory look at the re­port was enough to in­di­cate that the SBP has gen­er­ally con­fined it­self this time to the nar­ra­tion of de­vel­op­ments in var­i­ous sec­tors of the econ­omy dur­ing July-Septem­ber, 2014 and con­coc­tion of a pos­i­tive pic­ture of the econ­omy with­out high­light­ing its in­her­ent weak­nesses and show­ing the way for­ward. Clearly, the econ­omy of Pak­istan was faced with a num­ber of chal­lenges in Q1-FY15 in­clud­ing the de­lay in the re­lease of fourth tranche of Ex­tended Fund Fa­cil­ity (EFF) lead­ing to un­cer­tainty in the FX mar­ket and a sig­nif­i­cant de­pre­ci­a­tion of the Pak ru­pee in ad­di­tion to the dam­age to agri­cul­ture caused by floods and the neg­a­tive im­pact of the po­lit­i­cal events in Islamabad. As a con­se­quence of th­ese ad­verse de­vel­op­ments, it was nat­u­ral for the econ­omy to suf­fer losses in terms of growth, fis­cal and cur­rent ac­counts etc. The sit­u­a­tion dur­ing the first quar­ter of FY15, of course, com­pared un­favourably with the en­cour­ag­ing signs wit­nessed in the sec­ond half of 2013-14. How­ever, while no­body could ar­gue with th­ese ob­ser­va­tions as th­ese are now a mat­ter of record, one is some­what puz­zled to re­al­ize that the State Bank has omit­ted to high­light the

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