ADB wants Pakistan to cut deficit, inflation
ISLAMABAD, Oct 19: The Asian Development Bank has urged Pakistan to lower its fiscal deficit and inflation with a view to further improving the countryââ¬â¢s economy.
Pakistan's overall fiscal deficit could increase to five per cent of GDP in 2006-07, including expenditures related to earthquake reconstruction, equivalent to 0.6 per cent of GDP, it further stated.
In its latest "South Asia Economic Report (SAER)", the bank also termed "still high" eight per cent inflation in the country. It said that inflation declined in 2005-06 and that significant decline in food inflation was in part offset by higher oil prices. Tight monetary policy and measures, such as liberalised imports of food and other essential items in short supply helped combat inflation.
However, the ADB believes that Pakistan would be able to achieve seven per cent GDP growth during the current financial year because of the recovery in the agriculture sector, and higher private investment and increased development spending are projected to boost economic growth.
When contacted adviser to the ministry of finance Dr Ashfaque Hasan Khan did not agree with the ADB report and insisted the government would achieve its 4.2 per cent fiscal deficit target in 2006-07. Likewise, he said that earthquake related expenditure would also remain under the target.
Dr Khan said that inflation stood at 7.9 per cent and not eight per cent as was claimed in the ADB report. He said the government was hopeful to achieve its inflation target of 6.5 per cent in 2006-07, which would further come down to 5.5 per cent during 2007-08.
The report said the budget 2006-07 continued the growth-oriented policy stance, and development spending was projected to increase to 4.9 per cent of GDP. The budget also aims at increasing revenues through broadening the tax base, and the tax-to-GDP ratio is projected to rise by 0.4 per cent of GDP.
It said that Pakistan's GDP growth had slowed in the fiscal year 2005-06 to 6.6 per cent, largely because of the impact of adverse weather conditions on major crops. This significantly reduced growth in the agriculture sector and in agro-based industries, particularly cotton textiles and sugar.
"Slower growth in money supply during the last financial year and continued tight monetary policy should reduce inflation to 6.5 per cent in 2006-07," the report said.
The State Bank of Pakistan maintained a tight monetary policy stance in 2005-06, and the rate of increase in broad money was below operations without significantly raising the benchmark six-month Treasury bill rate. In July 2006, the SBP accelerated the monetary tightening by raising the cash reserve requirement, the statutory liquidity requirement, and its policy rate by 50 basis points to 9.5 per cent.
The development expenditure in 2005-06, the report said, increased by 37.8 per cent to 4.1 per cent of GDP compared to 2.8 per cent two years earlier. Similarly, the fiscal deficit increased to 4.2 per cent of GDP, including expenditures amounting to 0.85 per cent of GDP on earthquake relief and rehabilitation.
Domestic production was unable to meet the increase in domestic demand in 2005-06, and imports rose more than twice as fast as exports. Imports were also boosted by the large increase in the oil import bill and trade deficit increased sharply.
The current account deficit swelled to 4.4 per cent of GDP. However, because of a more-than-two-fold increase in foreign direct investment to $3.5 billion, including privatisation proceeds, a well-received $800 million Eurobond issue by the government, larger inflows of official assistance, and lower amortisation. Official foreign exchange reserves rose by $955 million to $10.8 billion.
The ADB report also said that import growth was projected to slow down significantly during the current financial year, as tight monetary policy dampens growth in domestic demand, and exports are likely to more or less sustain their growth because of improved agriculture production, and the reduction by the European Union of the anti-dumping duty on bedlinen exports and restoration of some benefits under the Generalized System of Preferences. However, the current account deficit is expected to rise to 5.5 per cent of GDP.
Growth in South Asia has been accelerating since the early 1990s, and its economic performance during the last decade-and-a-half has been impressive. Economic growth has contributed to significant reduction in poverty in the region. "Today, South Asia stands at a point where the potential for sustained high growth and poverty reduction is excellent." The region has a unique opportunity to drastically reduce poverty over the next decade, provided the right policy choices are made.
South Asia is well established on a high growth path, with strong and improving macroeconomic fundamentals. While India is in the lead, the improvement in performance in South Asia is broad-based.
"In macroeconomic management, the key areas of concern are inflation and increasing current account deficits. This may require curbing domestic consumer demand through appropriate monetary and fiscal policies, and action on domestic energy prices to improve energy use efficiency," the report added.
"South Asia stands at critical juncture today, where the potential for sustained high growth and poverty reduction is excellent", the report added. A unique opportunity exists to drastically reduce poverty over the next decade, provided the right choices are made, said Kunio Senga, Director General of ADB's South Asia Department.
The report says that intra-regional trade and investment offers immense opportunities for accelerating growth and reducing poverty in South Asia. India could become a hub for stimulating the growth of intra-industry trade in the region and boost the inflow of foreign investment into South Asia.
ISLAMABAD, Oct 19: The Asian Development Bank has urged Pakistan to lower its fiscal deficit and inflation with a view to further improving the countryââ¬â¢s economy.
Pakistan's overall fiscal deficit could increase to five per cent of GDP in 2006-07, including expenditures related to earthquake reconstruction, equivalent to 0.6 per cent of GDP, it further stated.
In its latest "South Asia Economic Report (SAER)", the bank also termed "still high" eight per cent inflation in the country. It said that inflation declined in 2005-06 and that significant decline in food inflation was in part offset by higher oil prices. Tight monetary policy and measures, such as liberalised imports of food and other essential items in short supply helped combat inflation.
However, the ADB believes that Pakistan would be able to achieve seven per cent GDP growth during the current financial year because of the recovery in the agriculture sector, and higher private investment and increased development spending are projected to boost economic growth.
When contacted adviser to the ministry of finance Dr Ashfaque Hasan Khan did not agree with the ADB report and insisted the government would achieve its 4.2 per cent fiscal deficit target in 2006-07. Likewise, he said that earthquake related expenditure would also remain under the target.
Dr Khan said that inflation stood at 7.9 per cent and not eight per cent as was claimed in the ADB report. He said the government was hopeful to achieve its inflation target of 6.5 per cent in 2006-07, which would further come down to 5.5 per cent during 2007-08.
The report said the budget 2006-07 continued the growth-oriented policy stance, and development spending was projected to increase to 4.9 per cent of GDP. The budget also aims at increasing revenues through broadening the tax base, and the tax-to-GDP ratio is projected to rise by 0.4 per cent of GDP.
It said that Pakistan's GDP growth had slowed in the fiscal year 2005-06 to 6.6 per cent, largely because of the impact of adverse weather conditions on major crops. This significantly reduced growth in the agriculture sector and in agro-based industries, particularly cotton textiles and sugar.
"Slower growth in money supply during the last financial year and continued tight monetary policy should reduce inflation to 6.5 per cent in 2006-07," the report said.
The State Bank of Pakistan maintained a tight monetary policy stance in 2005-06, and the rate of increase in broad money was below operations without significantly raising the benchmark six-month Treasury bill rate. In July 2006, the SBP accelerated the monetary tightening by raising the cash reserve requirement, the statutory liquidity requirement, and its policy rate by 50 basis points to 9.5 per cent.
The development expenditure in 2005-06, the report said, increased by 37.8 per cent to 4.1 per cent of GDP compared to 2.8 per cent two years earlier. Similarly, the fiscal deficit increased to 4.2 per cent of GDP, including expenditures amounting to 0.85 per cent of GDP on earthquake relief and rehabilitation.
Domestic production was unable to meet the increase in domestic demand in 2005-06, and imports rose more than twice as fast as exports. Imports were also boosted by the large increase in the oil import bill and trade deficit increased sharply.
The current account deficit swelled to 4.4 per cent of GDP. However, because of a more-than-two-fold increase in foreign direct investment to $3.5 billion, including privatisation proceeds, a well-received $800 million Eurobond issue by the government, larger inflows of official assistance, and lower amortisation. Official foreign exchange reserves rose by $955 million to $10.8 billion.
The ADB report also said that import growth was projected to slow down significantly during the current financial year, as tight monetary policy dampens growth in domestic demand, and exports are likely to more or less sustain their growth because of improved agriculture production, and the reduction by the European Union of the anti-dumping duty on bedlinen exports and restoration of some benefits under the Generalized System of Preferences. However, the current account deficit is expected to rise to 5.5 per cent of GDP.
Growth in South Asia has been accelerating since the early 1990s, and its economic performance during the last decade-and-a-half has been impressive. Economic growth has contributed to significant reduction in poverty in the region. "Today, South Asia stands at a point where the potential for sustained high growth and poverty reduction is excellent." The region has a unique opportunity to drastically reduce poverty over the next decade, provided the right policy choices are made.
South Asia is well established on a high growth path, with strong and improving macroeconomic fundamentals. While India is in the lead, the improvement in performance in South Asia is broad-based.
"In macroeconomic management, the key areas of concern are inflation and increasing current account deficits. This may require curbing domestic consumer demand through appropriate monetary and fiscal policies, and action on domestic energy prices to improve energy use efficiency," the report added.
"South Asia stands at critical juncture today, where the potential for sustained high growth and poverty reduction is excellent", the report added. A unique opportunity exists to drastically reduce poverty over the next decade, provided the right choices are made, said Kunio Senga, Director General of ADB's South Asia Department.
The report says that intra-regional trade and investment offers immense opportunities for accelerating growth and reducing poverty in South Asia. India could become a hub for stimulating the growth of intra-industry trade in the region and boost the inflow of foreign investment into South Asia.
