Despite several concerns and shocks to the economy of the country, the real Gross Domestic Product''''''''''''''''s (GDP) growth target would not be revised and it would remain 7 percent for the fiscal year 2008. This was stated by Governor State Bank of Pakistan (SBP), Dr Shamshad Akhtar, during a press conference to announce monetary policy here on Thursday.
SBP Governor said that presently economies across the world were facing challenges and difficulties and GDP growth rates of world economies have been declined by 0.7 percent, adding that although economies of some developed countries including China were growing consistently despite the challenges.
She said that it is expected that despite the several shocks to the country''''''''''''''''s economy during the last six-months, GDP growth target would be hovered around its target of 7 percent, however she emphasised that the risks of inflation may outweigh the risks to growth in the near future.
She said that real lending in Pakistan is still lower as compared to the other regional countries, however the M2 growth is higher than the target of 13.5 percent to 19.5 percent.
She said that despite SBP instructions to the federal government for reducing its budgetary borrowing from central bank, the same is still higher and has reached to Rs 237 billion.
"During the current fiscal, private sector borrowing statistics showing positive trend and its growth is higher than the last fiscal, presently private sector borrowing''''''''''''''''s growth stood at 10.4 percent as compared to 10.2 percent during the last fiscal,'''''''''''''''''''''''''''''''' she said.
She said that although SBP paid full attention to maintain and bring down the inflation, it has increased by 150 basis points. She cautioned that if the SBP not took steps in the monetary policy to curb the rising inflation, it could reach in double digits.
SBP Governor elaborated that the developments in the first half of FY08 substantially deviated from the monetary policy framework. Most significant among these deviations is the behaviour of the fiscal account. Slippages from the fiscal deficit target have, and will, cause complications for monetary management during the course of the year.
During the course of the year, liquidity management is challenging as the commercial banks and central bank ended up together financing almost 60 percent of the budget deficit for the July 1- January 29, FY08 period, she added.
Notwithstanding the impact of the political uncertainty and pressures of government borrowings on the financial system, private sector credit managed to grow by 10.4 percent during July1 -January 19, FY08 as compared to 10.2 percent over corresponding period of the previous year, Dr Akhtar said.
This was partly helped by the calibrated liquidity injections in the system and a decline in the effective Cash Reserve Requirement (CRR), she said and added that banks and SBP worked closely to ensure export financing was being provided in line with requirements.
As of January 5, 2008 exporters benefited from Rs139.6 billion-export credit against Rs131.6 billion at the same point in FY07. Dr Akhtar said that the monetary stance adopted since April, 2005 has had a visible impact. Core inflation came down during FY06 and FY07, albeit slowly and with the standard lag typically observed in developing countries.
Excessive growth in reserve money during fiscal year 2007 due to exceptional requirements of the textile industry for re-financing and budgets continued recourse during the fiscal year on central bank borrowings, she said. Dr Akhtar stressed that the tight monetary policy stance, especially since the previous policy rate increase, has begun to lose some of its steam.
A moderate increase in KIBOR and banks'''''''''''''''' lending rates, almost flat Monetary Conditions Index, a fall in the effective CRR, and persistently high annualised M2 growth rate are all manifestations of these developments, she added.
Furthermore, there was a reversal in core inflation trends, which rose to 8.7 percent on a year on year basis by December 2007; 2.3 percentage points above the last year level and 2.4 percentage points above the trough reached in May 2007. Headline CPI inflation reached 8.8 percent by December 2007 reflecting the undercurrents of core inflation and the food inflation, which hit double-digits, to reached 12.2 percent in December 2007, she said.