KARACHI, Feb 11: The second quarter (Oct-Dec 2001) report released by the ABN-AMRO Bank N.V (Pakistan) last week, ‘fine-tunes’ its earlier forecast of Pakistan’s expected GDP growth in financial year 2002, from a range of 2.5 to 3.1 per cent, to a new provisional range of 2.7 to 3.1 per cent.

The growth range is ahead of the overall last year GDP at 2.6 per cent and the Bank said that its forecast was based on assessment of the real sector, on current trends. The upward revision was prompted by several factors which included: Lower-than-anticipated loss of exports to the US, which has so far generated a smaller knock-on impact on the manufacturing sector; higher-than-expected output in major crops — baring rice — specifically, the late spurt in sugar production, which is expected to provide a significant uplift to headline large scale manufacturing (LSM) growth and finally, a prospective double-digit growth in the electricity and gas distribution sub-sector. This important industrial sector with weight of 3.4 per cent in GDP had made a negative contribution to GDP last fiscal.

The Report observed that despite an intensification of the water crisis, the crop situation was holding up well under the circumstances and major crops were expected to post output growth of around 2.5 per cent, with aggregate growth in the agriculture in the region of one per cent.

Mentioning the long shadows of war, the Report notes: “Pakistan and India appear to have moved back from the brink of yet another war, but with the two armies — the fifth and fourth largest in the world, respectively — fully mobilized and standing ‘eyeball to eyeball’, peace has not, however, been fully secured”. The Bank, nonetheless details the peace dividends under various heads: Reduction in defence expenditures; boost to intra-regional trade and improved sovereign ratings/investor sentiment.

Contrary to the previous apprehensions, global events unfolding since September 11 have not inflicted so much overall damage to the economy as was envisaged. “Against expectations of a substantial adverse fall-out on the country’s balance of payments in the immediate aftermath of September 11, Pakistan’s external account position has in fact progressively strengthened since then”, the Report says. It lists: total gross international reserves (excluding gold), which rose from US$3.3 billion on September 15 to $4.8 billion by end-December; appreciation in Rupee value by 8 per cent against dollar in open market and stock market rally by 30 per cent in dollar terms, post the September 11 low.

In the large scale manufacturing, one group of industries benefited from the post September 11 scenario, while some others lost. The group that benefited comprise principally, the fast- moving consumer goods (FMCG) category, where sales rode high because border with Afghanistan remained sealed leading to interruption of informal and formal flow of goods between the two countries. On the other hand, sectors that suffered a loss in demand consist of products which have an active market across the border and have been traded both officially as well as unofficially. In the main, this category includes steel products, cement and other basic material primarily catering to the building/construction industry.

Credit demand by private sector from the banking system remained depressed for the first six months of FY02 relative to previous year. The reasons included delayed recourse to bank borrowing by the textile sector in the current season and delay in start of sugarcane crushing by mills.

“An important explanation also appear to lie in the fact that during calendar 2001, corporate borrowers took greater recourse to issuance of TFCs rather than relying on ‘traditional bank borrowing”, writes Sakib Sherani and Ali Khilji, the research team at ABN.AMRO Bank, “This was prompted by a number of considerations related to cost, strategic diversification of funding sources, testing the market, or as in some cases, simply to benefit from the fact that prudential regulation on per-party limits do not apply to the non-bank investor base”.