(MENAFN- Khaleej Times) Pakistan's economy offers good prospects despite mixed performance in the outgoing year, as home remittances sent by Overseas Pakistanis are moving on the fast track to set a historic high, exports are rising, prices of imported international oil and other commodities are declining, and imports are up and rising.
This is how one will read the latest annual report of the State Bank of Pakistan (SBP), the central bank. It reviewed performance of the economy in the financial year 2013-14 and noted significant developments including 'tangible improvement in the country's foreign exchange reserves, an unprecedented appreciation in rupee in early March, lower than expected inflation rate and improvement in the private sector credit'.
The actual GDP growth was 4.1 per cent - a bit lower than the government-set target of 4.4 per cent. The farm sector came out with a 2.1 growth, rather than the projected 3.8 per cent, while the services sector expanded 4.3 per cent, against the 4.6 per cent target. To every ones joy, the inflation rate was to 8.6 per cent as against the projected eight per cent.
Much of the credit for this positive performance goes to the actual producing and servicing sectors which were buoyed up by the pro-business government of Prime Minister Nawaz Sharif which came into power in May 2013.
Since then the economy is trying to come out of the low-geared production and performance during five years of Pakistan Peoples Party (PPP) government which was led by President Asif Ali Zardari. The PPP government was thrown out by the voters in May 13, 2014 elections, after being billed as corrupt, unimaginative, and the one which mis-managed the economy.
The SBP report, mandated by the Parliament of Pakistan which will debate it also, highlights the good management of the foreign exchange and external balances which helped build forex reserves.
"The key message in the external sector is that while the overall size of the external gap was manageable in 2013-14, financing it was quite challenging," the report said.
It has some kudos for the International Monetary Fund, which helped Pakistan manage its external sector, by approving more than $ 6.5 billion to bolster the Pakistan's foreign exchange reserves.
"With the start of a new IMF programme, external inflows from other international financial institutions also began after a gap of almost three years. It helped stem the gradual depletion of SBP's foreign exchange reserves," the report said.
On the top of it, an inflow of $ 1.5 billion into the Pakistan Development Fund in February-March 2014 contributed with its share to release the pent up inflows. It aided in the serious task of stabilising the depreciating rupee.
This process was followed by SBP by tightening the monetary policy as there were concerns over the external sector and likely pressure on the value of the rupee. Monetary Policy (MP) was eased from middle of 2011, in order to help bank credit outflows to the private sector which was starving for cash for years. That situation had restricted upgrading and expansion of all producing sectors of he economy for years.
The easy money policy was also likely to possibly create pressures on the value of the rupee. That easy money MP stance was changed in September 2013. It was then that SBP adopted an MP with an eye to restrain the inflationary trends in he economy. The SBP report cautions about the current 'political uncertainty created by public protests that started in the middle of August (2014) and has since receded'.
"The economic cost of this political impasse is difficult to quantify, but it is clear, this uncertainty has delayed investment plans. For business that needs to interface with the federal government delays have become commonplace."
But, the irony is what SBP describes the public protest as having "receded," it has turned into an ongoing process. The trouble is still brewing, and no one knows how and when it will come to a halt. Overall, the SBP says financial year 2014 was a better year as far as macro-economic indicators are compared with fiscal year 2013.
But the report also confirmed that some of the government-set targets for financial year have stayed unachieved.
Based on the economy's performance in financial year 2014, SBP has reduced the projected growth target for financial year 2015 to 4-5 per cent range. Finance Minister Ishaq Dar had, in June this year, set the growth target at 5.1 per cent in his speech on the National Budget for financial year 2015. At the same time, the government had planned to retain the fiscal deficit at 4.9 per cent. But SBP now projects it to be in the range of 5-6 per cent for financial year 2015. It does not include several hundred billions rupees of circular debt, the government owes to electricity and fuel supply companies. With that payment, the deficit will run up much higher.
SBP has, however, raised a red flag over the ongoing energy shortages, which are worsening in several places and for a number of industries. Even the highly export-oriented textiles industry the nations' top-most foreign exchange earner through exports, and which has been given a GSP Plus status by the EU and offered a huge market for Pakistani duty free exports is crying for more and more energy.
Several others including the fast track cement and other industries, too, are hit. The State Bank said: "Pakistan energy sector is besieged by unpaid bills known as 'circular debt,' which runs through the entire power generation chain. The debt mounted to Rs500 billion by November 2014." It just means that the government is not receiving payments from energy users."
"Part of energy is stolen through dubious power supply distribution lines, while diesel and fuel oil destined for power-generating is outright stolen by officials managing tankers before they reach energy-generating units, one ministerial level official admits.
"The total loss to the government at the hands of energy thieves, and the route cause of the miserable energy sector, is Rs1,000 billion a year. The government does not have the will, the guts and administration to catch thousands of energy thieves," he also confides, and admits "some of the top thieves are the government high-ups themselves".
Instead, the government "continues to raise energy prices - hitting the honest consumers who actually pay the amount which is stolen by the powerful and influential energy thieves. If this big drain of theft is stopped all the energy debts, the sectors financial deficits and burdens will be gone," he also confesses. On theft, no action was taken from the government side.
The government, last year, unlawfully managed to narrow down the fiscal deficit to 5.5 per cent because it "did not pay off the circular debt," and hid the fact in official budgetary accounts. However, "the current account deficit may be manageable at 1-2 per cent of GDP, and the overall fiscal picture for the country has improved," SBP says.
The SBP is worried, too, about the state of the value of the rupee, which besides the domestic business and money managers, is a matter of concern, sometimes diversely, for millions of overseas Pakistanis, including those working in the GCC countries, the UK and US. "There are valid concerns that Pakistan's export performance has been affected by the appreciation of rupee in March 2014, but the available data does not favour for a conclusive answer. In addition, import payments for petroleum, steel, plastics and fertilizers have remained high."
Fiscal 2014 saw "a tangible improvement in the country's foreign exchange reserves, unprecedented appreciation in the value of the rupee in early March, reduction in the fiscal deficit, lower than expected inflation rate, improvement in the private sector credit take-off and relatively constrained current account deficit, the central banks also says.
The outlook for financial year 2015 is far better. And, it is good news for the home-based Pakistanis, the overseas Pakistanis, the exporters to Pakistan, and the country's foreign trading partners. But why?
The government has almost succeeded in building a record $15 billion forex reserve and exporters to Pakistan will face no difficulty in receiving payments for their goods and services, the imports are moving up and faster than last year, and exports may come close to $27-30 billion - an amount which is circulating in the business and financial community.
The rupee will stay strong, and inflation will further drop, from an already low of the last decade. So, with Allah's blessings, cheer up everyone.
The writer is based in Islamabad and contributes regular columns on Pakistan.
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