KARACHI: The State Bank of Pakistan has drawn the attention of the government towards its promises to increase investment, which could not be fulfilled.

“The Annual Plan for fiscal year 2014-15 envisaged better energy supplies, visible increase in investment, political stability and favourable weather conditions. None of these factors could mark a noticeable improvement, which continued to limit economic growth during the year,” said the SBP in its third quarterly report.

The report praised the government for the steps taken by it for improvement of economy, but it also pointed towards some critical issues in its detailed report.

The report disclosed that services sector performed better than last year during the first nine months, but it was all owing to government’s involvement, and not to private sector.

The services sector grew in the current fiscal year because it was mainly pushed by higher salaries and pensions of government servants and growth in financial and insurance sector; it was also because of their investment in government papers. “Despite lower growth in commodity producing sectors (agriculture and industry), services managed to grow by 5 per cent in the fiscal year 2015, which was higher than 4.4pc of last year. The impetus came from general government services, reflecting an increase in salaries and pensions of government employees,” said the SBP.

Another push was a healthy growth in finance and insurance, primarily driven by financial institutions investment in government securities, said the report.

Commercial banks invested Rs1.2 trillion in government papers in the first nine months which was an all-time high. Total investment by the end of March 2015 stood at Rs5.3tr. This huge investment by financial services sector in government papers boosted services growth.

The performance of private sector in the services category was disappointing. Within services, performance of wholesale and retail trade, with 18.3pc share in GDP, is closely linked to growth in commodity producing sector.

“The wholesale and retail trade posted relatively low growth of 3.4pc in fiscal year 2015 compared with 4pc in the previous year,” said the report. Another reason was slow growth in transport, storage and communications. Details indicate that visible improvement in Railways and air transport was eclipsed by negative growth in communications.

“Cellular subscribers were lower as service providers focused on authentication of SIM cards. With the introduction of innovative packages based on 3G/4G spectrums, the communication services are likely to rebound in the coming year,” said the report. How the rising domestic debt is eating up revenues is also indicated in the report. The report mentioned that interest payments further increased in the first nine months of the current fiscal year.

“Interest payments which accounted for over 40pc of the federal government’s current expenditures increased by 7.2pc in July-March of fiscal year 2015,” said the report.

However, interest payments grew by 17.7pc in July-March of fiscal year 2014. “The deceleration was largely attributed to semiannual coupon payments on PIBs which have changed the schedule of debt-servicing.”

Published in Dawn, July 22nd, 2015

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