ISLAMABAD, 5 April 2004 — The Pakistani central bank forecasts higher growth and larger business turnover, this year, in its latest report on economy.
The State Bank of Pakistan (SBP) has upped the GDP growth rate from the government’s earlier projection of 5.3 percent to 5.8 percent for fiscal 2004 that ends June, 30. A higher growth is on the horizon on the back of higher-than-expected industrial production fueled by larger and cheaper bank credit.
“The improvement in the country’s economic environment is emphatically punctuated by indicators such as the record high exports, the sharp rise in imports of machinery and industrial inputs, the continuing surge in capacity utilization, the strong growth in taxes, and, above all, the record growth in net private sector credit offtake,” said the SBP report.
But, there are weak spots, too. “Anecdotal evidence suggests that unemployment, though falling gradually, remains significant, and with the economy still performing below the 6 percent long-term growth trajectory, the likelihood of an immediate relief is low,” it admits. But it highly understates the job situation, which was bad four years ago — and still is worsening. Unemployment, especially among the educated young men and women is very high, and can cause a major unrest for the government of President Pervez Musharraf and Prime Minister Mir Zafaraullh Khan Jamali. In fact, wages have come down even for those educated people who got some kind of jobs — usually below their own qualifications. Even if, the GDP rises to 5.8 percent as SBP projects — or a 6.0 percent growth trajectory is achieved — there will be a fairly long time lag between the demand and creation of new — and better — jobs that will come on line.
SBP also admits , “another, more recent, concern is the specter of rising inflation,” and “a clear evidence of a gradual uptrend in prices.” Food prices, rose to a six-year record in December 2003, according to the government statistics which are highly controversial, and understated, because the price situation on the ground is worsening. Inflation and higher cost of living is impacting the middle and the lower middle classes as wages remain sticky.
Independent economist are blaming the inflationary pressures on SBP’s easy money policy and the spiraling bank credit to private business, in a historic-low interest rate environment.
Some of the economic indicators for the like periods of 2003 and 2004 are: Large scale industrial output moved from 5.3 percent to 14.7 percent, exports 16.6 percent to 13.2 percent, imports 18.7 percent to 14.1 percent, tax revenues from 15.4 percent to 14.4 percent, private business credit 10.1 percent to 18.8 percent, money supply-M2 8.6 to 9.0 percent, total liquid forex reserves $9.336 to $12.172 billion, home remittances declined from $2.018 billion to $1.861 billion, and foreign private investment was down from $541 million to 277 million. As a percentage of GDP, government’s fiscal deficit is a down from 1.6 percent to 0.8 percent, trade deficit stays at 0.9 percent and the current account balance moved from 3.4 to 2.4 percent.
Although inflationary pressure are strengthening, the central bank’s easy money policy remains intact which, it insists, focuses on “supporting the economy’s progress toward a higher, long term trajectory.” “SBP continues to closely monitor price trends and stands ready to respond aggressively to contain any surge in inflation beyond tolerable limits,” it says.