Inflation likely to end up at 7pc

Published January 7, 2005

KARACHI, Jan 6: Adviser to the prime minister on finance Dr Salman Shah expects the inflation rate will start coming down during the next six months and will end up on an average of seven per cent for the entire fiscal year 2004-05.

Giving a mid-year review of the economy on Thursday at a gathering of the Management Association of Pakistan (MAP), the adviser conceded that inflation remained "out of line" in the last six months mainly because of the impact of rising international oil and food prices.

The core inflation caused by government's fiscal policies, he pointed out, was six per cent but oil prices and food inflation contributed to rising inflationary pressures.

State Bank Governor Dr Ishrat Husain was the key speaker at the gathering but he could not come as he had to leave for Dhaka on Thursday morning. The PM's adviser was confident that interest rates would also remain stable in the next six months and that the State Bank would continue with the moderate monetary policy.

He attributed the shortage of certain food supplies to the absence of buffer stocks which are very essential in Pakistan where projections of demand and supply are never proved accurate.

"A balanced demand and supply of essential commodity like wheat or sugar is alright on the paper but the reality is that either the supply does not meet the projected quantity or demand exceeds the original projection."

The government has already imported about one million tons of wheat and plans to import 200,000 tons of sugar if it is found to be short in supply. The purpose of import of these commodities is to give a loud signal to the hoarders that there would be enough supply and that rates in the open market should come down to a realistic level.

At the outset, he said the present economic structure with strong and stable macro-economic factors was the end product of over 10 years of partnership with the International Monetary Fund.

The growth rate will be seven per cent, budget deficit is under control, and economy as a whole showing outstanding performance, Pakistan is now well poised for showing much better results in the years to come.

While giving growth numbers of agriculture, large-scale industry and other sectors, the PM's adviser expressed all hopes of harvesting a bumper wheat crop next spring after reaping the highest ever bumper cotton crop this winter.

"Unlike Indonesia, Philippines and a few other countries which remain under the IMF surveillance even after successfully completing the IMF programmes, there is no monitoring or watch on Pakistan after it has recently quit the three-year PRGF."

Dr Shah said the Central Board of Revenue was at present collecting nine to 10 per cent of GDP and the government planned to raise it to 15 per cent of GDP in future for which the second phase of reforms with the assistance of the World Bank was being taken up.

While growth, inflation control and budget deficit are being managed successfully, the adviser said the government had now started addressing the poverty alleviation programme.

For this purpose a pro-poor investment programme is already underway. "The government is investing and has grand plans to push up pro-poor investment in developing basic infrastructure.

A huge portfolio of mega projects in infrastructure is already under implementation," he added. Responding to a question, Dr Shah said that the country's business relation with China was very critical to Pakistan's progress and development in the next decade.

He, however, conceded that Pakistan lacked enough expertise to understand China's market. "On Pakistan's request China is sending many delegations in quick sequence to interact with Pakistan.

Two delegations that are coming soon will deal with value-added agriculture and SMEs." He said Pakistan's strategic location at the crossroads of Central Asia, South Asia and the Middle East with three sea ports made it an ideal trading house of the region.

Dr Shah, however, pointed out certain hurdles that would come in the way of future development and added these were human resources, which needed to be developed with big investment, and energy constraints for which Pakistan was interacting with Iran, Qatar and Central Asian countries for gas pipelines.

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