Pakistans GDP growth would be just 2.5 percent in fiscal year 2009: Escap

[LahoreEstate]

ZAHEER ABBASI & ASMA RAZAQ
ISLAMABAD (March 27 2009): Economic and Social Commission for Asia and Pacific (Escap) has projected that Pakistans growth rate would be just 2.5 percent in fiscal year 2008-09 while economists feared that it could be even lower than this. The Escap endorsed 2.5 percent growth rate revised by the IMF for Pakistan for 2008-09 from 3.5 percent estimated earlier for the year.

Dr Ashfaque Hasan, former advisor to the Ministry of Finance said that recently the growth rate was lowered to 2 percent for the ongoing fiscal year. In a presentation on factors responsible for macroeconomic difficulties, Ashfaque said that sudden rise in oil and food prices have been largely responsible for widening the current and trade accounts deficits.

Pakistan, he said paid $4 billion extra in terms of oil mainly on account of surge in prices. Ashfaque who has been one of those tasked to reshape Pakistans economy during last eight years admitted that incompetence at the level of decision making was also responsible for the economic mess. Hallmark was absence of adequate policy response to such threats, he added.

He said that commodity prices have come down to one-fourth in the global market but their impact in the local market was very little. The pace of reduction in inflation was very low in Pakistan as compared to the region in the wake of dwindling commodity prices, he said.

Ashfaque said the government should pursue tight monetary policy, increase tax to GDP ratio and ensure massive running of through forward of PSDP to reduce fiscal deficit. The focus, he said should be on enhancement of agriculture yield, which was never given importance during last many decades.

Dr Aynul Hassan who heads the macroeconomic policy and development division of Unescap said that Asia-pacific region faces a triple-threat to the development - financial crisis, volatile food and fuel prices and climate changes. He said that the Asian countries should increase inter-regional trade and investment as this would help move the region from crisis resilience to crisis resistant.

He said that volatile oil prices posed threat to the regions food security. These could result in trade imbalance, inflation and poverty and hunger, so the neighbouring countries need to strengthen trade ties to counter such threats. Dr Sarfraz Qureshi said that roughly 16 million people have slipped into poverty during last two years of global economic crisis and its impact on Pakistan.

The survey launched here at the United National Information Center noted that Pakistans economy suffered from political instability, law and order problems, supply shocks, a softening of external demand, turmoil in international financial markets and high prices of oil, food and other commodities.

Due to global economic slowdown and internal difficulties, GDP growth in Pakistan is expected to further reduce to 2.5 percent in 2009 while inflation in Pakistan rose steeply with food inflation going even higher. The situation was exacerbated by the weakness of the domestic currency, the gradual removal of fuel, food and power subsidies and the monetary overhang of excessive borrowing from the central bank to finance the large fiscal deficit.

The longer the inflationary pressure persists, the greater the chance for a wage-price spiral to gain hold. Tight monetary and fiscal policies are necessary to prevent such a spiral. If the budget deficit is not contained, tight monetary policy alone may not achieve the desired results.

With fall in oil and other commodity prices in international markets, inflation has started falling. Though overall revenue in Pakistan increased, but the increase in expenditure was much larger, mainly because of subsidies on oil, power, fertiliser, wheat and other food items.

Among long-term challenges, poverty remains a major problem for most countries in South Asia. Also, economic and social inequalities remain widespread. The main challenge for countries in the sub-region, therefore, is not only to improve growth rates on a sustained basis but also to make them more inclusive for a rapid reduction in poverty and inequality.

It underlined the need to strengthen the social safety nets for the poor and vulnerable who are unable to benefit from economic growth directly or indirectly. This support should be strengthened to provide a coping mechanism for the poor, especially in the event of macroeconomic shocks such as current global economic crisis.

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