State Bank of Pakistan observes Pak economy going into drain

SBP observes Pak economy going into drain

State Bank of Pakistan, while releasing its annual report, has expressed its concern over the way the government was playing havoc with the economy of the country. The crux of the SBP’s report stated that a major chunk of the vows
caused to the economy of Pakistan were caused by mal-governance on part of the ruling lot.

Calling Pakistan’s current economic position as that of "stagflation", the central bank chalks out some major, inter-related issues that warrant "urgent policy attention", such as fiscal problems, domestic debt issues, power shortage
and the external sector.

Reflecting on the real sector, SBP points out the poor performance of the manufacturing sector-a negative 0.1 percent growth in the industrial sector in FY11-and the relatively better performance of the services sector-an overall growth of 4.1 percent in the
last fiscal year.

The former owes its poor performance to the Great Floods of 2010, while the latter was supported by an increase in government salaries and defence spending.

Overall, with a GDP growth rate of 2.4 percent in FY11, Pakistan’s performance this fiscal year paled in comparison to key Asian peers.

Domestic issues, including energy shortages, lawlessness and low investment are riding behind Pakistan’s ailing economic performance.

The severity of the situation can be gauged from the following words of the SBP: "Pakistan’s investment rate was only 13.4 percent in FY11, which is the lowest since FY74." Further criticising fiscal mismanagement in Pakistan, the central bank disapproves the
lack of implementation of key fiscal reforms such as broadening of the tax base, phasing out of subsidies, restructuring of loss-making state-owned enterprises (SOE), etc.

The revenue side was pumped up through ad hoc measures such as the flood surcharge imposed in the latter half of the fiscal year, which just added on to the burden of existing taxpayers.

In fact, the central bank also highlights that tax revenues actually decreased in real terms.

The expenditure side, on the other hand, was marked by a misallocation of spending, with development expenditures sacrificed for rehabilitation of flood-affected persons, expenditure on Federal subsidies three times greater than budgeted, and diseased SOEs
drilling a hole in the government’s wallet.

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Posted by Fayyaz Yaseen on Dec 22 2011. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry