Pakistan economy report: Forex reserves fall, Large scale manufacturing falls, inflation rises
Inflation exceeds budget target
ISLAMABAD, March 5: There has been a decline in foreign exchange reserves, a fall in large-scale manufacturing and the core inflation crossed 11 per cent during the first six months of the current fiscal year, while trade and current account deficits have surged by more than 100 per cent, according to the finance ministry.
“Both trade and current account deficits are high and rising. In the absence of both short- and long-term corrective policy measures, these two deficits may reach unsustainable levels,” the finance ministry said in its mid-year (July-December 2005) review.
On the positive side, the capital market emerged as one of the best performing markets in the world, foreign direct investment increased significantly and external debt declined, both in absolute terms and as percentage of GDP.
INFLATION: The report said that inflation was estimated at 8.4 per cent during the first six months of the current year as against 8.8 per cent in the same period last year. However, it conceded that inflation was higher than the budgeted target of 8.0 per cent.
“The non-food, non-energy inflation which is also known as ‘core inflation’ has also moved up and is estimated at 7.6 per cent as against 6.6 per cent in the same period last year,” the report said. Inflation, as measured by the consumer price index (CPI) during the first six months of the current year, has also increased to 11.1 per cent, as against 10.4 per cent in the same period last year, it added.
Likening inflation to toothpaste that was difficult to cap once it had been let out, the report claimed success for the government’s policy to liberalise the import regime for wheat, wheat flour, sugar, livestock and other essential items, although record high prices of vegetables and sugar are still fresh in the public mind.
AGRICULTURE: The report said the cotton crop assessment committee had revised downward crop production from the original 15 million bales to 12.5 million bales, owing to lower than targeted sowing and rains at the crucial stage. However, “recent information indicates that the size of the cotton crop may be in the range of 12.7- 13 million bales or 8.9 to 11 per cent less than last year.
Sugarcane and sugar production was also lower than last year, while rice production was estimated to be 9.5 per cent than last year and 10 per cent higher than the original target of five million tons. Wheat production is also expected to be higher than the 22 million tons target set for the year.
LARGE SCALE MANUFACTURING: Against the growth target of 14.5 per cent for the year, the LSM has grown at an average rate of 12 per cent during first five months of the current year. The performance of petroleum group, engineering industries and non-metallic mineral products has been relatively weak while basic metal industries and tyres and tubes have registered large negative growth.
One of the coke oven batteries of Pakistan Steel Mills (PSM) has been out of order since July 2005, causing PSM to operate at around one-third of its capacity. Consequently, the production of basic metal industries have registered a decline of 60.3 per cent.
TRADE: Despite sizable export gains, merchandise trade deficit widened to $5.58 billion in the first six months of the current fiscal year. Exports in recent years have benefited from structural changes, but the rising oil bill and continued strength of non-oil imports owing to strong domestic demand have pushed imports higher, resulting in the trade gap widening by about 133 per cent.
CURRENT ACCOUNT DEFICIT: Pakistan’s current account balance that slipped into rend in 2004-05 after posting surpluses for three consecutive years remains in deficit with the gap continuing to widen. The current account deficit excluding official transfers stood at $3.0 billion in the first half of the current fiscal year as against $0.83 billion in the same period last year, showing an increase of over 260 per cent.
FOREX RESERVES: During the current fiscal year, the outflow of foreign exchange in the shape of import bill payments was higher than the inflows, resulting in decline in reserves by $0.957 billion since the beginning of the fiscal year. Forex reserves stood at $11.656 billion at the end of December compared with $13 billion in April.
EXCHANGE RATE: The exchange rate remained stable with a minor 0.3 per cent decline between June and December last year.
DEBT AND LIABILITIES: Total public debt increased by 2.9 per cent to Rs4.157 trillion during July-December 2005 from Rs4.0 trillion in absolute terms, although it reduced as a percentage of GDP.
On the other hand, total external debt and liabilities declined to $35.245 billion by the end-December 2005 showing a reduction of $0.589 billion in the first half of the current fiscal year.
By Khaleeq Kiani
ISLAMABAD, March 5: There has been a decline in foreign exchange reserves, a fall in large-scale manufacturing and the core inflation crossed 11 per cent during the first six months of the current fiscal year, while trade and current account deficits have surged by more than 100 per cent, according to the finance ministry.
“Both trade and current account deficits are high and rising. In the absence of both short- and long-term corrective policy measures, these two deficits may reach unsustainable levels,” the finance ministry said in its mid-year (July-December 2005) review.
On the positive side, the capital market emerged as one of the best performing markets in the world, foreign direct investment increased significantly and external debt declined, both in absolute terms and as percentage of GDP.
INFLATION: The report said that inflation was estimated at 8.4 per cent during the first six months of the current year as against 8.8 per cent in the same period last year. However, it conceded that inflation was higher than the budgeted target of 8.0 per cent.
“The non-food, non-energy inflation which is also known as ‘core inflation’ has also moved up and is estimated at 7.6 per cent as against 6.6 per cent in the same period last year,” the report said. Inflation, as measured by the consumer price index (CPI) during the first six months of the current year, has also increased to 11.1 per cent, as against 10.4 per cent in the same period last year, it added.
Likening inflation to toothpaste that was difficult to cap once it had been let out, the report claimed success for the government’s policy to liberalise the import regime for wheat, wheat flour, sugar, livestock and other essential items, although record high prices of vegetables and sugar are still fresh in the public mind.
AGRICULTURE: The report said the cotton crop assessment committee had revised downward crop production from the original 15 million bales to 12.5 million bales, owing to lower than targeted sowing and rains at the crucial stage. However, “recent information indicates that the size of the cotton crop may be in the range of 12.7- 13 million bales or 8.9 to 11 per cent less than last year.
Sugarcane and sugar production was also lower than last year, while rice production was estimated to be 9.5 per cent than last year and 10 per cent higher than the original target of five million tons. Wheat production is also expected to be higher than the 22 million tons target set for the year.
LARGE SCALE MANUFACTURING: Against the growth target of 14.5 per cent for the year, the LSM has grown at an average rate of 12 per cent during first five months of the current year. The performance of petroleum group, engineering industries and non-metallic mineral products has been relatively weak while basic metal industries and tyres and tubes have registered large negative growth.
One of the coke oven batteries of Pakistan Steel Mills (PSM) has been out of order since July 2005, causing PSM to operate at around one-third of its capacity. Consequently, the production of basic metal industries have registered a decline of 60.3 per cent.
TRADE: Despite sizable export gains, merchandise trade deficit widened to $5.58 billion in the first six months of the current fiscal year. Exports in recent years have benefited from structural changes, but the rising oil bill and continued strength of non-oil imports owing to strong domestic demand have pushed imports higher, resulting in the trade gap widening by about 133 per cent.
CURRENT ACCOUNT DEFICIT: Pakistan’s current account balance that slipped into rend in 2004-05 after posting surpluses for three consecutive years remains in deficit with the gap continuing to widen. The current account deficit excluding official transfers stood at $3.0 billion in the first half of the current fiscal year as against $0.83 billion in the same period last year, showing an increase of over 260 per cent.
FOREX RESERVES: During the current fiscal year, the outflow of foreign exchange in the shape of import bill payments was higher than the inflows, resulting in decline in reserves by $0.957 billion since the beginning of the fiscal year. Forex reserves stood at $11.656 billion at the end of December compared with $13 billion in April.
EXCHANGE RATE: The exchange rate remained stable with a minor 0.3 per cent decline between June and December last year.
DEBT AND LIABILITIES: Total public debt increased by 2.9 per cent to Rs4.157 trillion during July-December 2005 from Rs4.0 trillion in absolute terms, although it reduced as a percentage of GDP.
On the other hand, total external debt and liabilities declined to $35.245 billion by the end-December 2005 showing a reduction of $0.589 billion in the first half of the current fiscal year.
posted by India News Watch at 7:48 AM
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