Econ­omy at cross­roads

The Pak Banker - - 4editorial - Mo­hi­ud­din Aazim

HAND­SOME growth in ex­port earn­ings and home re­mit­tances re­duced cur­rent ac­count deficit over five months of this fis­cal year. Over­all bal­ance of pay­ments also re­mained sur­plus de­spite swelling im­port bills af­ter the Ju­lySeptem­ber floods and con­trac­tion in for­eign in­vest­ment in­flows. The ru­pee re­mained sta­ble last month but it came un­der pres­sure this month due to endquar­ter ex­ter­nal debt ser­vic­ing.

In­fla­tion in five months to Novem­ber re­mained higher than in the same pe­riod last year due to ex­pan­sion in fis­cal deficit, af­ter-ef­fects of the floods, with­drawal of sub­si­dies from power sec­tor, spike in in­ter­na­tional prices of com­modi­ties and in­creased govern­ment bor­row­ing from the cen­tral bank.

Tax rev­enue col­lec­tion dur­ing July-Novem­ber recorded around 10 per cent growth over the same pe­riod of 2009 but it fell short of tar­get by Rs5 bil­lion. The govern­ment is busy se­cur­ing sup­port of all po­lit­i­cal forces to in­tro­duce RGST and to in­crease rev­enue col­lec­tion and doc­u­ment the econ­omy.

Im­po­si­tion of RGST, re­forms in loss-mak­ing state-owned en­ter­prises, drive against cor­rup­tion and block­ing of leak­ages in tax col­lec­tion have be­come nec­es­sary to help the govern­ment keep its fis­cal deficit within this year's tar­get of 4.7 per cent of GDP. Data on fis­cal deficit for the first half of the year would be out to­wards the end of the third quar­ter. But se­nior of­fi­cials of the min­istry of fi­nance say that Ju­lyDe­cem­ber 2010 deficit may reach three per cent of GDP.

Con­strained by lower-than-tar­geted tax col­lec­tion amid fast-grow­ing ex­penses on the war-on-ter­ror and post-flood rehabilitation ini­tia­tives, the fed­eral govern­ment has re­duced its pub­lic sec­tor devel­op­ment pro­gramme for this fis­cal year from Rs280 bil­lion to Rs150 bil­lion. Cu­mu­la­tive devel­op­ment bud­get of the prov­inces has also been cut to Rs240 bil­lion from Rs373 bil­lion.

Large-scale man­u­fac­tur­ing wit­nessed con­trac­tion in the first quar­ter and it is vul­ner­a­ble to per­sis­tent power out­ages as well as ris­ing in­ter­est rates.

But of­fi­cials of min­istry of com­merce an­tic­i­pate a re­ver­sal of the trend dur­ing this quar­ter as ac­tiv­i­ties in ce­ment, auto man­u­fac­tur­ing, cot­ton and tex­tiles, iron and steel, agri­cul­ture ma­chin­ery and fer­tilis­ers have ac­cel­er­ated from Oc­to­ber on­wards.

On agri­cul­ture side, cot­ton out­put at 9.377 mil­lion bales till De­cem­ber 15, was shorter by 1.9 mil­lion bales over the same pe­riod last year. But of­fi­cials of Karachi Cot­ton As­so­ci­a­tion and Pak­istan Cot­ton Gin­ners As­so­ci­a­tion say, to­tal out­put dur­ing the cur­rent sea­son would not miss the post-flood re­vised tar­get of 11 mil­lion bales against do­mes­tic re­quire­ment of 14 mil­lion bales.

Fall in do­mes­tic as well as global out­put has made cot­ton dearer. Spot rate on Karachi cot­ton mar­ket has recorded an in­crease of more than 40 per cent in less than six months.

The cost of pro­duc­ing cot­ton tex­tiles has thus in­creased. But ex­porters have been able to pass on the in­crease in in­put cost to their buy­ers. That ex­plains, in part, about 20 per cent in­crease in tex­tile ex­ports earn­ings in the five months to Novem­ber.

Sug­ar­cane crush­ing has be­gun across the coun­try but a row over prices be­tween grow­ers and sugar millers has re­sulted in de­lay of cane har­vest­ing at some places.

And that, in turn, is de­lay­ing sow­ing of wheat. Also, grow­ers com­plain that banks are dilly-de­lay­ing dis­burse­ment of sub­sidised loans for farm in­puts that the govern­ment had an­nounced as part of an agri­cul­tural re­vival pack­age.

The govern­ment has al­lowed un­lim­ited ex­port of wheat and wheat flour keep­ing in view that wheat pro­duc­tion this year would be around 25 mil­lion tonnes-up from a lit­tle less than 24 mil­lion tonnes last year. This de­ci­sion would help in boost­ing food ex­port earn­ings and re­duce the losses that the Pun­jab govern­ment in­curs in ac­cu­mu­la­tion of in­ter­ests on loans acquired ear­lier for wheat pro­cure­ment. With ma­jor­ity of sugar mills now crush­ing cane, prices of sugar have come down which should help in con­trol­ling food in­fla­tion.

Also, prices of ed­i­ble oil have fallen in do­mes­tic mar­kets af­ter some eas­ing in their global prices-and that too should help keep food in­fla­tion in check.

But the govern­ment bor­row­ing from the cen­tral bank re­mained high in the five months to Novem­ber and is still up frus­trat­ing the State Bank's move to check in­fla­tion through mon­e­tary tight­en­ing.

The Cen­tral Di­rec­torate of Na­tional Sav­ings has in­tro­duced three-month short-term sav­ings cer­tifi­cates to in­crease govern­ment bor­row­ing from non-bank sources. Of­fi­cials in the Cen­tral Di­rec­torate of Na­tional Sav­ings say, sale of these cer­tifi­cates would start from Jan­uary.

This would help the govern­ment re­duce its in­fla­tion­ary bor­row­ings from the cen­tral bank to some ex­tent.

Of­fi­cials of CDNS say they hope to raise at least Rs40 bil­lion through these cer­tifi­cates over the sec­ond half of the cur­rent fis­cal year.

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