March 31, 2006	Friday	Rabi-ul-Awwal 1, 1427

Please Visit our Sponsor (Ads open in separate window).

ISLAMABAD, March 30: The United Nations Economic and Social Commission for Asia and the Pacific’s (ESCAP) flagship publication Economic and Social Survey of Asia and the Pacific 2006 has projected a slowdown in growth and inflation in Pakistan during 2006.

The publication launched here on Thursday said that the country would most likely achieve a growth rate of 6.5 per cent primarily because of a lower than expected performance of the agriculture sector.

The government had set a growth target of 7 per cent for GDP during 2006, less than the 8.4 per cent achieved during 2005, but higher than the long-term growth trajectory of 6 per cent. Sustaining high growth rate would be primarily possible because of strong services and large scale manufacturing sectors.

The earthquake that devastated the northern parts of the country would have minimal impact on the growth rate, firstly because the contribution of the areas affected by the quake was less and secondly the reconstruction activity would stimulate economic growth.

To prevent the growth rate from deviating from the growth path attained during the past few years, the report suggests cutting down the current expenditure and addressing imbalances in the external sector.

Besides, it has called for enhancing the buoyancy of tax revenues to improve the tax to GDP ratio.

The inflation increased sharply by more than four percentage points during 2005 to touch the figure of 9.3 per cent. Increased domestic spending due to higher consumption, rising oil prices and commodity prices had contributed to the sharp increase in inflation.

It is now being expected that this would drop off to 8 per cent due to the decline in aggregate demand implicit in lower growth estimate, a high base effect for 2006 prices and an anticipated improvement in food supplies.

Nevertheless, the prices of construction material are expected to increase at a fast pace because of supply bottlenecks associated with the reconstruction work in quake zone.

The report contends that judicious use of fiscal and monetary policies can help limit the increase in consumer prices. The $1.8 billion surplus in the current account in 2004 became a $1.5 billion deficit as a result of high trade deficit of $4.5 billion in 2005.

While exports grew by the healthy rate of 16.9 per cent, imports grew almost twice as fast by 32.3 per cent. Dollar four billion remittances, gains from the lower interest payments on external debt and liabilities offset the impact of large trade gap thus containing the current account trade deficit. On average the value of rupee against dollar depreciated by 3 per cent in fiscal year 2005.

The report cautioned that the budget deficit brought down during 2004 to 3.0 per cent of GDP could rise again. The deficit has already reached 3.3 per cent.

Meanwhile, about the unemployment situation, it has been said that the labour market has hardly progressed relative to the region’s economic gains despite limited improvement in 2003. The participation of women in labour force has been dismally low at 16.3 per cent.

Underemployment, the report says, is more widespread, but it is largely undocumented.