Wednesday, January 5, 2011

Economy under stress, says SBP governor Kardar

Economy under stress, says SBP governor Kardar

ISLAMABAD: The State Bank of Pakistan (SBP) on Tuesday informed the legislators that the total debt and liabilities of the government of Pakistan have increased from 68.7 percent of the gross domestic product (GDP) in 2009-10 to 69.5 percent of the GDP during 2010-11.

Debt and liabilities have increased from Rs 8.746 trillion in 2009-10 to Rs 10.196 trillion in 2010-11.
In a presentation on State of Economy at the Senate Standing Committee on Finance, SBP Governor Shahid Kardar said that aftermath of floods and continued delays in implementation of economic reforms were stressing the economy and large-scale manufacturing (LSM) and agriculture output growth were in the negative zone during the first quarter of the current financial year.
Total debt rose from Rs 8.306 trillion in 2009-10 to Rs 9.685 trillion in 2010-11 and other liabilities have also surged increase from Rs 439.9 billion in 2009-10 to Rs 510.5 billion in 2010-11. Total public debt, which was recorded at Rs 7.835 trillion, or 61.5 percent of the GDP by the end 2009-10 has gone up to Rs 9.106 trillion or 62.1 percent of the GDP in 2010-11.
Warning about the increase in fiscal deficit, he said, at current the run rate based on the first quarter data the fiscal deficit could reach 6.0 percent of GDP. M-2 growth, he said, during the first quarter of the current fiscal year has risen by Rs 360.3 billion or 6.2 percent as compared to Rs 237 billion or 4.2 percent during the same period last fiscal. “If timely reforms measures are not taken then external financing could be jeopardised.”
The governor informed the committee that total debt included Rs 4.652 trillion, Rs 374 billion public sector enterprises (PSEs) debt, external debt Rs 4.658 trillion, break-up of which included government external debt Rs 3.667 trillion, International Monetary Fund (IMF) debt Rs 690 billion, PSEs external debt Rs 83 billion, private sector external debt Rs 217 billion and liabilities at Rs 510.5 billion during 2010-11.
The government’s fiscal position, he said, has weakened and the monetisation of the deficit has increased inflationary pressures and broadening of the tax base is imperative. The continued deficit financing has made interest rate increases unavoidable, these could have been higher if borrowing was directly from the commercial banks. He said financial account however remained a concern especially if the fiscal deficit was not controlled, Reformed General Sales Tax and power sector reforms were not implemented and subsidies not abolished.
He noted with concern that the government expenditures have risen by 9.0 percent while revenue collection had increased by 7.0 percent. The government has borrowed Rs 374 billion from the central bank, while loans of Rs 366 billion for commodity operation and Rs 368 billion for PSEs, Rs 20 billion monthly subsidy on power tariff and Rs 29 billion per annum subsidy on fertilizers were further pressing the economy.
He said the total debt has increased from 65.2 percent of the GDP or Rs 8.306 trillion in FY09 to 66 percent of the GDP or Rs 9.685 trillion in FY10. The total debt and liabilities increased from Rs 8.746 trillion or 68.7 percent of the GDP in FY09 to Rs 10.196 trillion or 69.5 percent of the GDP in FY10.
The government’s domestic debt increased from Rs 3.861 billion or 30.3 percent of the GDP in FY09 to Rs 4.652 billion or 31.7 percent of the GDP in FY10. The PSEs domestic debt increased from Rs 290 billion in FY09 to Rs 374.9 billion in FY10. The external debt increased from Rs 4.155 trillion in FY09 to Rs 4.658 trillion in FY10.
He said higher remittances and exports have minimised external current account deficit but financing position without support of the IMF and donors could become an area of concern. The increase in international commodity prices enhanced farm incomes, supported aggregate demand and boosted exports but has also stoked inflation.

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