State Bank Of Pakistan Reprt For 2004-2005 And, estimates for 2005-2006.growth will slow


http://www.dailytimes.com.pk/default...-10-2005_pg1_8

Sunday, October 30, 2005

SBP report for fiscal year 2004-05: 6.3-6.8% GDP growth expected for 2005-06

* SBP warns of impact of quake on economy
* Agriculture growth 7.5% in 2004-05
* LSM recorded 15.6% growth
* CPI rose to 9.3 by end of June 2005
* Country debt increases by 5.9%

By Arshad Hussain

KARACHI: The country’s gross domestic production (GDP) for the fiscal year 2005-06 is estimated to be from 6.3 to 6.8 percent, but the economy could suffer if the weakness in key indicators are not addressed, the central bank said on Saturday.

The bank also warned that the devastating October 8 earthquake will take its toll on the economy.

In its annual economic report for the fiscal year 2004-05, the State Bank of Pakistan (SBP) said: “The economy continued to accelerate for yet another year in fiscal year 2004-05, with GDP growth rising to a 20-year high of 8.4 percent, propelled by above-target contributions from three major sectors: agriculture, industry and services.”

The report warned, however, that indicators such as the lack of buoyancy in taxes, growth in current expenditure, and external sector imbalances must be addressed if the current trend of growth is to be maintained. “The country’s economy went down following the rise in international oil prices and a gradual monetary tightening in efforts to contain inflationary pressure,” the SBP report said.

Agriculture: The agriculture sector staged a strong performance with a 7.5-percent growth during the fiscal year 2004-05, surpassing the annual target of 4.0 percent. The record production of 14.6 million bales of cotton and a bumper harvest of wheat, 21.1 million tonnes, during fiscal year 2004-05 pushed the share of major crops in agricultural value addition to 37.1 percent in the fiscal year 2004-05 from 34.0 percent during the previous year, the report said.

Industry: The SBP report said that the provincial estimates place the fiscal year 2004-05 industrial growth at 10.2 percent, which is down from the 12 percent recorded during the preceding year.

Large-scale manufacturing (LSM) recorded a growth of 15.6 percent in the fiscal year 2004-05 as compared to 18.2 percent in the previous fiscal year 2004. The strongest contribution to LSM growth during the fiscal year 2004-05 came from the textile sector, which witnessed a remarkable year on year growth of 24.7 percent compared to 6.5 percent in the preceding year.

Other LSM sectors that made significant contribution to value addition include automobiles and electronics, mainly driven by the availability of consumer financing, the report added.

Furthermore, local cement dispatches also showed a growth of 18.2 percent owing to higher domestic demand and exports to Afghanistan and Iraq.

Services: In the service sector, the growth rate of 7.9 percent during the fiscal year 2004-05 is significantly above the 6.2 percent target, as well as the 6.0 percent actual growth witnessed during the previous year. The major contribution came from finance and insurance, wholesale and retail trade and transport, storage and communication sub-sectors.

Prices: Inflationary pressures strengthened significantly during the fiscal year 2004-05, with the annual Consumer Price Index (CPI) inflation remaining high throughout the year, the report said.

During the first half of the 2005 fiscal year, CPI inflation was principally driven by domestic factors and was largely insulated from high international oil prices, the report said. In the second half of 2005, the influence of these factors was compounded by the impact of the hike in the domestic prices of petroleum, oil and lubricants as well as the associated rise in inflationary expectations. As a result, the annual average CPI inflation rose to 9.3 percent by the end of June 2005.

Money and Banking: The report said that the SBP had begun raising benchmark interest rates early in 2004, but this increase was very gradual until January 2005.

Major performance indicators until recently have shown an improvement in the financial health of banking institutions, the report said. For instance, the banks’ earnings have improved due to the large credit expansion, especially in view of the rise in interest rates and the trend in diversified deployment of credit across sectors.

Domestic and External Debt: The country’s total debt witnessed an increase of 5.9 percent during the fiscal year 2004-05.

In terms of external debt and liabilities, its stock witnessed a marginal rise of $576 million during the fiscal year 2004-05, reversing the steady downtrend visible since the fiscal year 1999. This rise came despite a fall of $154 million in external liabilities as well as the $495 million debt relief provided by the US during the year. The major factors contributing to the rise in debt were fresh inflow from multilateral creditors, the Islamic Development Bank and the issuance of an Islamic bond - sukuk in the international capital market.

Balance of Payments: The major highlight of Pakistan’s external sector is the record high trade deficit of $4.5 billion during the fiscal year 2004-05 compared to $1.3 billion in the preceding year. The sharp jump in trade deficit is clearly caused by the strong growth in import payments together with a rise in shipment freight charges during the fiscal year 2005.

Reuters adds: The SBP warned that the government’s fiscal deficit may widen due to the cost of rebuilding after the massive earthquake this month, while reduced agricultural output would trim growth. It said that the quake might boost manufacturing due to rebuilding efforts, but the government faced big bills to rebuild towns and roads, and the cost of caring for the injured. “The fiscal space will be sorely tested in the aftermath of the recent earthquake that severly damaged the public infrastructure in affected areas,” the SBP said. “This is not an easy task and, moreover, is one that will have to be sustained over a number of years.”
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