ISLAMABAD, Jan 3: A sharp decline in the growth of large-scale manufacturing, textile, food and two major crops coupled with constant inflation and increase in international oil prices is expected to bring down the growth of Pakistan’s economy to 6.5 per cent in the current financial year compared to 8.4 per cent last year.

The latest economic update of the Asian Development Bank (ADB) for the first three months of financial year (FY) 2005-06 predicts a GDP growth of 6.5 per cent only.

The country’s foreign exchange reserves have also declined by $1 billion to $8.8 billion in the first five months of the ongoing financial year, as the balance of payments position weakened.

“Cotton output is estimated to be 13 per cent lower than its record level of last year. Sugarcane crop is also expected to be smaller,” the bank observes.

Growth on large-scale manufacturing, the largest sub-sector in the industrial sector, declined sharply to 8.7 per cent in the first three months of FY2005-06 compared with a growth of 24.9 per cent in the corresponding period last year.

Growth in textile and food, the two largest industries, slowed down to 7.2 per cent and 10 per cent, respectively, from 29.6 per cent and 13.5 per cent recorded last year. However, construction continued to expand at a rapid pace, and generation and distribution of electricity also remained better.

In the services sector, telecom services continued to grow rapidly, particularly, the mobile phone services. Wholesale and retail trade also expanded due to the robust growth in imports and exports.

MONETARY POLICY: Despite deceleration in the prices of food items, inflation declined only marginally to 9 per cent in November 2005 from 9.3 per cent in June 2005.

“The impact of lower food prices was mostly cancelled by a sharp increase in oil prices,” the report says.

The State Bank of Pakistan (SBP) continued to pursue the right monetary policy in the first five and a half months of the current financial year.

The real interest rate on bank loans, which remained negative throughout the last finan-cial year, became positive for the first time in September last year.

Monetary growth was lower (4.5 per cent) in the first five and a half months of the current financial year compared to the 6.5 per cent in the same period last year. However, private sector continued to expand at a rapid pace (Rs216.7 billion compared with Rs189.7 billion in the corresponding period last year).

FOREX RESERVES: Foreign exchange reserves declined by $1 billion to $8.8 billion in the first five months of the current financial year.

“At this level, reserves are sufficient to finance 4.3 months of projected imports in the current year,” the report maintains.