Pakistan's economy back on track to gradual recovery

11:15, October 30, 2009      

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by Jawad Hussain

Pakistan's economy, baking by improved imports, is back on track and will be likely to meet the 3.3 percent growth target for the current fiscal year (2009-10), the State Bank of Pakistan (SBP) said Thursday.

Although, the recovery is gradual, but it has given a glimpse of hope to the nation that Pakistan would be able to meet its target for the financial year in the budget.

The central bank connects the rise in imports with a possible pick up in domestic demand in claiming that things have started to settle down for the national economy.

In its annual report published Thursday, the SBP said that with global economic slowdown easing, Pakistani exporters are likely to get more orders, which in return, would rev up the local productions at a time when the country is struggling to beat the crisis.

How far this projection would be realized, it's still a time-taking matter, but if government does come up with an action plan to cap the energy crisis, there is a great chance that local manufacturers would feel the confidence to step into the global markets resulting in better trade numbers and hence reduction in trade gap.

In this regard, if government also manages to win access to the EU and U.S. markets, it would act as a catalyst and jack up the whole manufacturing sector. The most important thing in this respect is that it would fortify the country's economy on strong footings with lesser dependence on offshore investment.

With some of the biggest names in the Pakistan's business community claiming that if provided government backing, they could arrange investment even more than the controversial U.S. aid package, i.e. Kerry-Lugar Bill, the government has this great opportunity to cash in on.

What it needs is to provide these huge business tycoons with just the right kind of platform and perks to explore and flood world markets with Pakistani produces.

Until now, the government of Pakistan is relying heavily on the foreign aids, or in other words pledges of international aid, and as prevailing law and order situation in the country is not conducive for foreign investment, government is left with no other option to wait for the realization of these donor pledges.

The report viewed that the national economy is likely to expand by around 2.5 percent and 3.5 percent, amid concerns showed by Asian Development Bank (ADB) last month by reducing its forecast for Pakistan's economic expansion in the year to June 2010 by percentage point to 3 percent. Arguing further, the ADB tied any improvement in economic numbers with peaceful Pakistan.

State Bank also pointed out a comparatively lower decline in the large scale manufacturing (LSM) and resolution of circular debt problem that has mounted once again and haunting the Pakistan State Oil and other oil marketing companies (OMCs) that would prove to be a helping hand to production activities in oil and energy sectors in the time to come.

Inflation is another subject that always catches the attention and SBP has a lot to talk about on this issue. After a couple of cuts in its key discount rate earlier this calendar year, the SBP kept its benchmark unchanged on Sept. 29, 2009 in its second monetary policy review for the current fiscal year.

Amid significant risks to the inflation outlook, the central bank highlights that a sharp decline in inflation numbers in the recent months has dragged lower any uncertainty over relative prices. Moreover, it would also help support the increase in investment demand.

With current projections, SBP sees inflation numbers easing further in the current financial year, which means that things are looking good on capital markets front as well because in case of any substantial decline in the key discount rates, stock markets of the country would respond positively.

With most of the international rating agencies hinting at Karachi Stock Exchange (KSE) crossing 12,000-mark towards the end of second quarter of the Financial Year 2009-10, any substantial rate cut would be exactly what the doctor could have ordered for the cause.

Average CPI annual inflation is expected to be 10 percent to 12percent and both the fiscal and current account deficits are likely to stay in the range of 4.7 percent and 5.2 per cent.

As Pakistan Army is busy in flushing out terrorists from the South Waziristan tribal agency and is just 4 kilometers away from Sararogha, which speaks of its success, one might open its mind to the projection that in near to medium term, security situation might improve in the country, which if it turns out to be a reality, could do wonders for national economy, provided government is able to cope with the power crisis amicably.

U.S. Secretary of State Hillary Clinton is visiting Islamabad nowadays in a bid to improve Pak-U.S. working relationship at the government level and has in her bag new economic pledges that also contains key demand of the Pakistan People's Party (PPP)-led government, i.e. access to the U.S. and EU markets. Any positive announcement by the U.S. government in this regard would further jack up the confidence of Pakistani government.

Source: Xinhua
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