Economic trends
* Overall external balance: It recorded a deficit of $0.5 billion during Jul-Oct FY06 against a $1 billion deficit realized in Jul-Oct FY05. The deterioration in the current account was offset by higher foreign investment and loans, and lower payments of foreign liabilities.
* Widening trade deficit: The gap at $3.37 billion during Jul-Oct is unlikely to add to market volatility as external account receipts are expected to increase during the year and foreign exchange reserves remain strong. The rupee-dollar parity remained practically unchanged during July–October FY O6.
* Foreign exchange reserves: The overall reserves fell by $1.29 billion in Jul-Nov to touch $11.3 billion by end November, 2005, down $1.7 billion from the peak level of $13 billion reached in April 2005. Reserves by the commercial banks fell by $387 million in the same period.
* Fiscal deficit: The fiscal deficit widened marginally during first quarter of FY06 rising to 0.5 per cent of estimated GDP as compared to approximately 0.4 per cent in first quarter of FY05. The fiscal performance is likely to deteriorate due to an expected rise is expenditures on earthquake victims.
* Gross domestic product: Real GDP growth will range between 6-6.6 per cent in FY06 against 8.4 per cent achieved in FY05. While the FY06 growth target is still not out of reach, achieving it might prove to be a challenge.
* Commodity producing sectors: Growth in large-scale manufacturing has decelerated sharply. Production of two of the four major Kharif crops significantly below target. The fall in output of major crops may yet be compensated by an anticipated above-target performance by minor crops and livestock sub-sectors.
* Monetary expansion: Although monetary expansion has been contained to three per cent during Jul-Nov FY06 as compared to five per cent in the corresponding period of the previous year. Demand for private sector credit has remained strong. Core inflation persists at a relatively high 7.6 per cent year over year.—Qasim A. Moini.
(Source: First Quarterly Report for FY06).