KARACHI, June 20: The mounting inflationary pressure, widening current account deficit and very high monetary growth in the outgoing year may create serious problem for the government in the next fiscal year.
While the government is under serious criticism over slow export growth, the State Bank on Wednesday said that the current account deficit rose by 60 per cent during the eleven months of the outgoing fiscal year.
The current account deficit reached to $7.379 billion during the period under review compared to $4.602 billion in the corresponding period last year. The high current account deficit with poor export growth would put more pressure on the economy and the government would have to borrow more and sell state assets through privatization to meet the deficit in the next fiscal year.
The supply of excess money fuels inflation and has resulted in the high growth of monetary assets (M2) till June 9, 2007.
The target for the full year was 13.46 per cent while the M2 grew by over 16 per cent in just 11 months adding Rs89 billion into monetary assets.
The trade deficit reached to $9.124 billion while the balance of goods and services during the July-May 2006-07 stood at minus $13.401 billion.
The State Bank has been showing satisfaction over the monetary growth and putting responsibility on the high foreign inflows in the form of investment and remittances from the overseas Pakistanis.
However, analysts said the new budget 2007-08 carried huge spending plan which would ultimately push inflation further higher. The government has admitted that the main inflation for 2006-07 would remain at 8 per cent.
Analysts said the new budget of Rs1.9 trillion would again not allow the government to curtail the monetary growth and inflation.
The inflation, which is termed an additional tax, could not be brought down to 6.5 per cent in the outgoing fiscal. “There is no hope that it will start declining in the next fiscal year,” analysts added.
They observed the export sector performance had not been satisfactory in view of massive subsidies and packages announced for various sectors in the outgoing year. Despite the fact, the government in the new budget announced more incentives for export-oriented industries particularly for textile sector. But it did not take any concrete measures to curtail import bill, which is the real reason for high trade deficit.