Country to miss growth target by 1.5 percent in fiscal year 2009

KARACHI (November 14 2008): The State Bank of Pakistan on Thursday projected that the country will miss its Gross Domestic Products (GDP) target by 1.5 percent in FY09 and expected that the growth would be some 4 percent, the lowest in last six years. The country is witnessing over 6.5 percent GDP growth rate since FY03 and during FY08, the country's economy registered a growth of 5.8 percent.

The central bank in its detailed monetary policy statement presented the outlook of economy on Wednesday and said that poor law and order situation, besides structural weaknesses such as power shortages, etc, are responsible for slow economic growth during the current fiscal year.

"Although, growth during 2009 would be lower than the target of 5.5 percent and actual estimated growth of 5.8 percent in FY08, however economic growth would be maintained or even sacrificed depending on the evaluation of the trade-off between inflation and growth," the SBP said.

The SBP said that tight monetary policy is the only ingredient of the macroeconomic stabilisation programme and several changes in the fiscal, external, and financial sectors are required immediately in the medium term to put the economy back on track.

The central bank also projected that inflation is likely to decelerate during second half of FY09 following the positive impact of global commodity prices, which are declining. The SBP estimated some 14 percent YoY headline inflation from 25 percent in October 2008, while on average basis, inflation will be close to 21 percent for FY09; well above the 11 percent target for the year.

Import growth for FY09 is also expected to be around 2.0 percent and may even turn negative due to the declining oil prices in world market and slowdown in domestic demand due to a depreciated rupee.

However, the SBP has said that growth slowdown and recession in Pakistan's major trading partner countries, particularly US, EU, and Japan, is likely to have an adverse effect on our exports, which expected growth would be around 10 percent during FY09.

"As per projected imports and exports and assuming a continuation of existing trend in workers' remittances, the external current account deficit is estimated to stand between 6.2 to 6.8 percent of GDP," SBP said.

The SBP said that fiscal deficit will have to be cut considerably, even lower than the projected 4.7 percent of GDP target for FY09 with the government's commitment to eliminate reliance on borrowing from the SBP to finance fiscal deficit and the lower availability of external financing. The expected developments in the external and fiscal sectors will be reflected in a monetary growth of around 12 to 13 percent.