THE Services’ sector is being summoned again for the third consecutive year in 2006-07, for, “turning in above the target growth’’ so that the overall national economy shows seven per cent growth by the end of June next.
The national economy, now in second half of the fiscal, carries a drag of below-target harvest of major kharif crops. The large scale manufacturing industry has shown an impressive growth of 9.7 per cent in the first quarter—July-September 06—but it is too narrow based and there are visible dark shadows of power shortages in the coming days, besides the capacity constraints and the State Bank of Pakistan considers achievement of 13 per cent target ``a difficult job’’.
Overall, industrial growth at 7.1 per cent during the first quarter of 06-07 is a little lower than 7.9 per cent rise witnessed in same period of 05-06. This is because of a slow growth in electricity generation and gas extraction attributed to disturbances in Balochistan.
Coming out with a second report within a span of 40 days,--the first quarterly report of 06-07 released on Thursday after launching of annual report of 05-06 on December 2, 2006—the State Bank of Pakistan seems too ambiguous in its reporting. This ambiguity raises the question of sustainability of national growth as the current SBP report does not elaborate how an over-stretched services sector, with already a big base, would be able to show growth that would compensate for the shortfalls in agriculture and industry in the current fiscal year.
`` The likelihood of achieving seven per cent growth rate remains strong, despite visible challenges in meeting growth target in industry and agriculture’’, says the SBP reports in its latest review of the national economy while pinning hopes on the services sector. But it does not mention which segments of service sector show prospects of growth.
Inflationary pressures are found to have been eased a bit in the current fiscal year, but this downward trend is unstable as Consumer Price Index (CPI) jumped up to 8.9 per cent in August 2006 before dipping to 8.1 per cent on year-to-year basis in October that remained at the same level in November.
``The State Bank of Pakistan has a mandate to maintain price stability with growth in the national economy’’ Dr Shamshad Akhtar told journalists while releasing the first quarterly report and mid- term review of 06-07 Monetary Policy. Her presentation gives an impression as if inflation was a number one issue and growth is relegated to second position in importance., she was told.
Tight monetary policy of the State Bank, she said is expected to contain core inflation in the remaining months of the 06-07 year. However she stressed that it was important to supplement this impact by the measures to address food inflation and high energy prices. ``Volatile, double digit food inflation is particularly undesirable in view of its greater impact on low income groups’’, the report observes.
One of the few factors causing inflationary pressures is the government borrowing from the banks which was found to be `higher and volatile’’. ``The high government borrowings and the resulting rise in reserve money, has the potential of re-igniting inflationary pressures’’, says the report while giving a loud signal to both--private sector and the government in case high interest rates are maintained.
In sharp contrast, private sector has responded to State Bank’s tight monetary stance and high interest rates. Private sector credit demand in first five months (July to November 06-07) rose by 5.9 per cent as against 10.9 per cent which is bound to have an impact on growth.
Agriculture performance calls for serious thinking. Water availability improved, farmers’ access to bank credit made easier and fertiliser’ prices brought down. But all major kharif crops failed to achieve target harvests. Cotton, rice and maize production remained lower. The State Bank report does not mention about sugar cane which showed better harvest but its prices have become a issue between the powerful farmers’ lobby and equally influential millers. Both-- farmers and sugar --are well entrenched in the federal/ provincial governments and in the legislatures but it is surprising that sugar crisis is lingering on for four years. It reflects government’s incapacity in bringing about a reconciliation between the conflicting interests which have started impacting both industry and agriculture.
Dismal performance of agriculture also demands a hard look at the land holding structure , particularly in Sindh and Seraiki belt of Punjab to assess how much of the cultivable land is being utilised and performance of small owners-farmers and their access to bank credits and other facilities.
Large scale manufacturing growth of 9.7 per cent during July - September owes much to phenomenal rise of about 42 per cent in electronics as against only nine per cent in same period last year. The report observes that the continued strong demand for consumer electronics reflects strong income growth , better access to credit and improvement in transmission and distribution of electricity by the utilities—Wapda and the KESC--.
How could one reconcile with the SBP’s observation on the looming electric power shortages in coming months that would have an adverse impact on industrial growth. Who would question government’s policy of initiating consumerism of electronics and auto cars when petrol prices are sky-high and electric generation has become a costly affair.
An interesting and somewhat startling disclosure on public finances during the first quarter in State Bank report regarding an ``unidentified expenditure’’ of Rs33 billion which is 751.5 per cent higher than earmarked Rs3.9 billion in 06. The public financing included ``un-identified expenditure’’ of Rs12.3 billion in 2003, Rs14.5 billion in 04 and Rs6.8 billion in 05.
``The classification of 0.4 per cent of total first quarter un-identified expenditure hampers a more meaningful analysis’’ says the SBP report while pointing out that 11.1 per cent growth in expenditure seems quite reasonable. But when it is added with unidentified expenditure the ratio jumps to a ``disturbing 23.9 per cent’’. One wonders whether the graduate legislators will take up this issue of unsolved puzzles in government’s book keeping and accounting.
The State Bank has taken notice of outflows of the profits and dividends from foreign investment in Pakistan which has started pinching the finances. No details have been given about the outflow from the privatised entities, banks owned by foreign sponsors and other external enterprises but the warning bells have started ringing. `The year 2006-07 will be through somehow, but the future poses a big question mark as many present liabilities have been deferred.’, observes an economist.