The growth rate of Gross Domestic Product (GDP) in the current financial year (FY08) would be close to six percent, below 6.6 to 7.0 percent growth forecast in the first quarterly report of the State Bank of Pakistan.
The SBP report released on Saturday was written prior to mid-December and had, therefore, failed to capture the data of the fall in industrial output and trade activity following Benazir Bhutto's assassination
According to some knowledgeable economists, the SBP report released on Saturday was written prior to mid-December and had, therefore, failed to capture the data of the fall in industrial output and trade activity following Benazir Bhutto's assassination.
"If the GDP growth is close to six percent - it is not bad," say the economists. "What is more important for the economy is to grow between six and seven percent over the next 10 to 15 years ie for an extended period without causing a high incidence of inflation," they added.
"In the past, we have seen that growth of seven percent or more is not sustainable - as it generates inflation. Unless we improve our productivity it is not yet possible to sustain non-inflationary growth at 7 percent," they added.
"A silver lining is the productivity gain achieved in agriculture. For last three years we have seen higher yields for most crops. In fact in FY07 a 10-year high was achieved. This can be directly correlated with the higher availability of bank credit to agriculture sector," the economists explained.
Besides, non-inflationary growth of over six percent on a long-term basis is a key pre-requisite to have macroeconomic stability. This requires reforms. For the last two years the pace of reform process has slowed down and there has been no major initiative, the economists emphasised.
Further, it is essential to set in motion development of the financial sector capital market. This is now overdue. Without this, no infrastructure development is possible. The capital market must provide the funding for investment rather than just be a conduit for speculation. Infrastructure projects need long term capital. Both the Securities and Exchange rules and the tax system simultaneously need to be attuned towards this goal, the economists argued. "Progress in these areas has been painfully slow" they pointed out.
And, third the progress towards documentation of the economy needs to be further expedited, as part of the tax reforms process. "Unless we create the required fiscal space to generate funds for investment in education and health, sustainable development on a long-term basis is just not possible," they added. At present, both the services sector and agriculture are lightly taxed while industry, corporate sector and fixed income taxpayers are bearing the brunt.
They said the Central bank has rightly called for immediate tackling of the twin deficits - fiscal and current account. The fall in consumer goods imports has been across the board but the sudden jump in oil import bill from October onwards has diminished the results which were expected from a tight monetary stance. The slowdown in aggregate demand for imports was expected - but the oil bill has nullified the expected improvement in bridging the trade gap, they added.
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