ISLAMABAD: Finance Minister Ishaq Dar is going to present the annual report for 2013-2014 of the State Bank of Pakistan (SBP) on the economy in the upper house of parliament today (Friday).
“As required under section 9-A (f) of the State Bank of Pakistan Act 1956, statistical supplement will also be annexed with the report which is going to be laid in the Senate, a source in the Finance Ministry told Customs Today.
The source said that SBP annual report had declared financial year 2013-14 a better year for the macro-economy after several years of low economic growth and poorly implemented structural reforms.
“The most notable developments were the IMF’s Extended Fund Facility (EFF) that was formalised in September 2013; the tangible improvement in the country’s FX reserves that started in February; the unprecedented appreciation of the PKR in early-March; the reduction in the fiscal deficit; the lower than expected inflation rate; the improvement in private sector credit; and the relatively contained current account deficit,” the source said while sharing key points of the report.
The source said the government took several initiatives to address key bottlenecks in the energy sector, the results remained short of expectations, and the sector continued to struggle as it has in the past several years. “Furthermore, despite policy intentions, public sector enterprises (PSEs) continued to be a fiscal burden on the federal government, as little in the way of internal restructuring was possible in power-related PSEs, PIA, Pakistan Railways and Pakistan Steel,” the source added.
The source said that the fiscal burden at 5.5 percent of GDP was significantly lower when compared to trends in the past three years and here was a concerted effort on the part of the government to contain expenditures and generate additional revenues.
“However, the ambitious tax revenue target set in the Budget, had to be adjusted downwards twice, during the course of the fiscal year” the source observed saying that efforts to document the economy and widen the tax net, did not deliver the desired results, even then fiscal deficit target of 6.5 percent announced in the FY14 Federal Budget, the government was able to contain the gap to 5.5 percent, which was a significant achievement.
However, the source said that one should be mindful of one-off factors like the inflow into the Pakistan Development Fund (PDF), and the fact that the government did not pay off the circular debt in FY14 and also highlight the role of provincial governments, which had vastly exceeded their commitment to book (and provide) surpluses to the federal government.
“More importantly however, the $1.5 billion inflow into PDF (which also released pent up inflows) inv February/March 2014, was unanticipated by the FX market, and triggered an unprecedented appreciation of the PKR. The positive sentiments this generated, also instilled a view that the government was finally gearing up for a growth phase,” the source observed.
Similarly, the source said that external grant and subsequent positive developments in the external sector, helped increase SBP’s FX reserves well above the end-quarterly targets the government had agreed with the IMF. The successful auction of the long-awaited 3G/4G telecom licenses in April 2014; the $2 billion mobilized via the Eurobond in April; and the divesture of UBL shares to foreign investors in June, pushed SBP’s FX reserves to $9.1 billion at the end of FY14 (a $3.1 billion increase during the year). In terms of unencumbered FX reserves (also called net international reserves), SBP was able to increase its actual FX holdings by $5.1 billion during the year.
“External sector also gained comfort from exogenous and one-off factors. Soft international commodity prices (especially oil and palm oil) allowed the import bill to grow by only 3.8 percent, which combined with the 1.5 percent growth in exports, increased the trade deficit by $1.2 billion in FY14,” he added.
“Despite an increase in the services deficit ($1.0 billion, because of a shortfall in CSF) and a larger income account deficit (by $251 million); the current account deficit only increased by $475 million during the year,” the source said adding that the critical source of comfort was the $1.9 billion increase in worker remittances, which was fast becoming as important as Pakistan’s export revenues.