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Pakistan looks to faster growth
By Syed Fazl-e-Haider Jan 14 2010
KARACHI, Pakistan - Economic growth in Pakistan will pick up this fiscal year to as fast as 3.3%, driven by the services sector, according to the country's latest central bank projections.
The forecast comes in higher than the 3% growth in gross domestic product (GDP) projected by the International Monetary Fund (IMF). The economy grew 2% in the fiscal year to June 30, 2009.
The major impetus for growth is expected to come from the services sector, according to the central bank's first quarterly report on the state of the economy for the current fiscal year. The report is based on data available up to mid-December.
Manufacturing and export industries are being held back by rising power and gas tariffs. Last month, the government shocked consumers by increasing electricity tariffs by 13.4% and removing a subsidy for lifeline consumers (with consumption of less than 50 units per month). The government had reportedly allocated 121 billion rupees (US$1.4 billion) for electricity subsidies during the current fiscal year, including 7 billion rupees for lifeline consumers.
Pakistan agreed in November 2008 to an IMF emergency loan package of $7.6 billion to avert a balance of payments crisis and shore up reserves. The fund increased the loan to $11.3 billion in July and released a fourth tranche of $1.2 billion last month. The IMF conditioned the next tranche of the loan on the removal of electricity subsidies.
The country's power sector lies at the heart of much of the country's commercial and industrial problems, with a poor infrastructure leading to regular blackouts and resulting in the country's export-oriented industries being unable to ensure on-time delivery to foreign buyers.
"Power blackouts cripple commerce and cause suffering in the daily life of millions of Pakistanis," Richard Holbrooke, US Special Representative for Afghanistan and Pakistan, said during a recent visit, according to the Dawn newspaper. "An efficient system of power generation and distribution is a critical factor in spurring economic development to the benefit of all."
The US has agreed to provide US$1 billion in assistance over the next four years to boost Pakistan's energy sector. Under an agreement recently signed by Economic Affairs Secretary Sibtain Fazal Halim and US Ambassador Anne W Patterson, the US will provide $16 million for improving the operational capacity of the Tarbela dam hydroelectric plant. It will help generate additional electricity of 375 megawatts. Rehabilitation of the Tarbela dam capacity is part of a $125 million programme announced by US Secretary of State Hillary Clinton in October last year.
The local business community has strongly objected to the government's decision to increase power tariffs from January, saying the move will bring already ailing industries to the verge of total collapse.
The removal of subsidies is adding to the rising costs facing consumers and industry after inflation had been pulled back from a high of 25.3% in August 2008 to 8.87% last October.
"The inflation outlook [year-on-year] has been revised from 9 to 11%," the IMF said in its latest review. "This reflects the rebound in the prices of fuel and a larger second round impact of the increases in electricity tariffs."
Given the present inflation trend, the IMF said it did not expect any easing of monetary policy. The central bank is due to announce monetary policy for February and March by the end of this month and local analysts expect the key policy rate to remain unchanged under IMF pressure. The central bank cut its policy rate by 50 basis points in November to 12.5%.
High interest rates are considered an important factor behind declines in the country's industrial output. The textile industry, which accounts for two-thirds of the country's exports, is one sector struggling to compete with international rivals. Exports of apparel from Pakistan in the past 10 years have increased to only $3.5 billion from $1.5 billion, compared with a surge to $12.5 billion from $1.5 billion in rival Bangladesh.
The central bank report said improvement in the tax-to-GDP ratio was also a major challenge in the economy. The increase of only 0.6% year-on-year in tax collection during the July-November period of the current fiscal year is a source of concern; if this continues, Pakistan's tax-to-GDP ratio will decline from an already low 9.8% achieved in the last fiscal year.
The country's trade deficit widened by 52.6% in December as imports rose faster than exports. The central bank report projects that total exports may remain between $18.5 billion and $19.0 billion this fiscal year, and imports between $30.5 billion and $31 billion. The fiscal deficit is forecast at between 4.7% and 5.2% and the current account deficit between 3.7% and 4.7% of GDP.
The IMF has estimated that the country's external debt is likely to grow by more than 43% over the next five years, to about $73 billion in 2015-16 from about $50.76 billion early this year. The debt will increase by about 13% this fiscal year, according to the IMF.
Syed Fazl-e-Haider (Syed Fazl e Haider) is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com. Asia Times Online :: South Asia news, business and economy from India and Pakistan
By Syed Fazl-e-Haider Jan 14 2010
KARACHI, Pakistan - Economic growth in Pakistan will pick up this fiscal year to as fast as 3.3%, driven by the services sector, according to the country's latest central bank projections.
The forecast comes in higher than the 3% growth in gross domestic product (GDP) projected by the International Monetary Fund (IMF). The economy grew 2% in the fiscal year to June 30, 2009.
The major impetus for growth is expected to come from the services sector, according to the central bank's first quarterly report on the state of the economy for the current fiscal year. The report is based on data available up to mid-December.
Manufacturing and export industries are being held back by rising power and gas tariffs. Last month, the government shocked consumers by increasing electricity tariffs by 13.4% and removing a subsidy for lifeline consumers (with consumption of less than 50 units per month). The government had reportedly allocated 121 billion rupees (US$1.4 billion) for electricity subsidies during the current fiscal year, including 7 billion rupees for lifeline consumers.
Pakistan agreed in November 2008 to an IMF emergency loan package of $7.6 billion to avert a balance of payments crisis and shore up reserves. The fund increased the loan to $11.3 billion in July and released a fourth tranche of $1.2 billion last month. The IMF conditioned the next tranche of the loan on the removal of electricity subsidies.
The country's power sector lies at the heart of much of the country's commercial and industrial problems, with a poor infrastructure leading to regular blackouts and resulting in the country's export-oriented industries being unable to ensure on-time delivery to foreign buyers.
"Power blackouts cripple commerce and cause suffering in the daily life of millions of Pakistanis," Richard Holbrooke, US Special Representative for Afghanistan and Pakistan, said during a recent visit, according to the Dawn newspaper. "An efficient system of power generation and distribution is a critical factor in spurring economic development to the benefit of all."
The US has agreed to provide US$1 billion in assistance over the next four years to boost Pakistan's energy sector. Under an agreement recently signed by Economic Affairs Secretary Sibtain Fazal Halim and US Ambassador Anne W Patterson, the US will provide $16 million for improving the operational capacity of the Tarbela dam hydroelectric plant. It will help generate additional electricity of 375 megawatts. Rehabilitation of the Tarbela dam capacity is part of a $125 million programme announced by US Secretary of State Hillary Clinton in October last year.
The local business community has strongly objected to the government's decision to increase power tariffs from January, saying the move will bring already ailing industries to the verge of total collapse.
The removal of subsidies is adding to the rising costs facing consumers and industry after inflation had been pulled back from a high of 25.3% in August 2008 to 8.87% last October.
"The inflation outlook [year-on-year] has been revised from 9 to 11%," the IMF said in its latest review. "This reflects the rebound in the prices of fuel and a larger second round impact of the increases in electricity tariffs."
Given the present inflation trend, the IMF said it did not expect any easing of monetary policy. The central bank is due to announce monetary policy for February and March by the end of this month and local analysts expect the key policy rate to remain unchanged under IMF pressure. The central bank cut its policy rate by 50 basis points in November to 12.5%.
High interest rates are considered an important factor behind declines in the country's industrial output. The textile industry, which accounts for two-thirds of the country's exports, is one sector struggling to compete with international rivals. Exports of apparel from Pakistan in the past 10 years have increased to only $3.5 billion from $1.5 billion, compared with a surge to $12.5 billion from $1.5 billion in rival Bangladesh.
The central bank report said improvement in the tax-to-GDP ratio was also a major challenge in the economy. The increase of only 0.6% year-on-year in tax collection during the July-November period of the current fiscal year is a source of concern; if this continues, Pakistan's tax-to-GDP ratio will decline from an already low 9.8% achieved in the last fiscal year.
The country's trade deficit widened by 52.6% in December as imports rose faster than exports. The central bank report projects that total exports may remain between $18.5 billion and $19.0 billion this fiscal year, and imports between $30.5 billion and $31 billion. The fiscal deficit is forecast at between 4.7% and 5.2% and the current account deficit between 3.7% and 4.7% of GDP.
The IMF has estimated that the country's external debt is likely to grow by more than 43% over the next five years, to about $73 billion in 2015-16 from about $50.76 billion early this year. The debt will increase by about 13% this fiscal year, according to the IMF.
Syed Fazl-e-Haider (Syed Fazl e Haider) is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com. Asia Times Online :: South Asia news, business and economy from India and Pakistan
