KARACHI: The State Bank claimed in its annual report issued on Wednesday that the fiscal year 2013-14 (FY14) was a better year for macro-economy, but the figures cited also showed that most of the targets set for the year could not be achieved, except the fiscal deficit which remained lower than the target.

But the report also indicated that the government had artificially managed to bring down the fiscal deficit to 5.5 per cent as it did not pay the amount due in FY14.

“The government did not settle the circular debt of about Rs235 billion in FY14. It treated a one-off grant of Rs157bn as a statistical discrepancy which reduced the overall deficit by the same amount. In effect, just these two factors account for a 1.5 percentage point reduction in the fiscal deficit,” the report said.

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“If we add to this the recovery of Rs56bn from public sector enterprises (as mark-up on loans extended earlier) following the settlement of circular debt in July 2013, and the one-off utilisation of Rs 67.7bn from the Universal Service Fund (USF), the fiscal gap increases to 7.5pc of GDP,” the SBP said.

The real GDP growth was 4.1pc against the target of 4.4pc – agriculture 2.1pc against the target of 3.8pc and services 4.3pc against 4.6pc and inflation 8.6pc against 8pc.

According to the report, the most notable developments were tangible improvement in the country’s foreign exchange reserves, unprecedented appreciation of the rupee in early-March, lower than expected inflation rate and improvement in the private sector credit.

The government services, which posted a growth of 11.3pc in FY13, only managed 2.2pc in FY14.

The State Bank criticised the government’s energy policy and said the inadequate planning and development of the energy infrastructure and lack of reforms in Gencos (generation companies) and Discos (distribution companies) continued to impede the country’s economy.

It said that despite being the single most important reason that Pakistan had posted record high fiscal deficits over the past three years, the energy sector continued to burden the economy (both directly and indirectly) and the country.

“Although FY14 witnessed fewer days when the demand-supply gap exceeded 4,000MW, compared to the previous year, a comparison with the period before FY12 shows a marked deterioration,” the report said.

The key message in the external sector, it said, was that while the overall size of the external gap was manageable in FY14, financing it was quite challenging.

“With the start of a new IMF programme, external inflows from other international financial institutions (IFIs) also began after a gap of almost three years,” the report observes. This helped stem the gradual depletion of SBP’s foreign exchange reserves.

Moreover, a $1.5 billion inflow into the Pakistan Development Fund in Feb/March 2014 contributed in releasing the pent up inflows, which helped stabilise the rupee.

The report observed that as part of the stabilisation programme to reduce the twin deficits (fiscal and external), the easing monetary policy stance that started in mid-2011 was changed in September 2013. The SBP opted to pursue a cautious monetary policy driven by concerns about the external sector and possible pressure on the local currency.

The report said that another key development was the political uncertainty created by public protests that started in the middle of August and had since receded. The economic cost of this political impasse is difficult to quantify, but “it is clear this uncertainty has delayed investment plans. For businesses that need to interface with the federal government, delays have become commonplace,” the SBP said.

Published in Dawn December 11th , 2014