April 01, 2008	Tuesday	Rabi-ul-Awwal 23, 1429

KARACHI, March 31: The country will miss the growth target of 7.2 per cent for the current fiscal year as both agriculture and large-scale industry under performed and its impact on the growth rate could not be compensated by strong growth in the services sector.

The State Bank of Pakistan has advised the government to exercise fiscal responsibility, restrain and restrict direct borrowing from the central bank to finance its expenditures. This is necessary to arrest the spiralling price trend as the deficit financing has a strong direct relationship with inflation.

The SBP released on Monday its second quarterly report for FY08 on the state of Pakistan’s economy. Commenting on the prospects of growth it says, “The economy is expected to turn in a reasonable growth performance during FY08, albeit substantially lower than the target.”

Explaining the key reason for moderation in growth rate it says, “So far, the principal drag on the year’s growth has been the outcome of Kharif harvests and slowdown in LSM (large scale manufacturing) growth, particularly in December ‘07. The services sector, on the other hand, is set to show good performance for the sixth consecutive year”.

Identifying the disturbing indicators impacting on the country’s evaluation by international creditors and donors, the report indicates, “However, the macroeconomic imbalances, particularly the widening fiscal and current account deficits, continued to create complications and add to inflationary pressures”.

The State Bank has accepted that the tight monetary policy has failed to yield the targeted results as inflationary pressures continue to mount all through the first half of the current fiscal year.

It attributed the troubling price scenario to the irresponsible fiscal management of the government that resorted to uninhibited deficit financing against the SBP advice. In addition to high oil prices, the unexpected commodity price surge has augmented the trend of rising prices as weak agricultural performance necessitated import of edibles at a high cost.

The last government and the caretakers’ setup did not take the SBP advice seriously and continued to depend heavily on short cut of the SBP borrowed money to bridge the gap between the revenue and expenditure. Will the Gilani government be able to control the temptation of easy money and opt for difficult but prudent economic management practices?

There are huge doubts over the ability of the democratic government to control government expenditure, especially when people and many segments are expecting a relief package immediately.