Pak Shape of economy in 2012-13 : Printing more money, energy subsidies hurting economy

Shape of economy in 2012-13 : Printing more money, energy subsidies hurting economy

Staff Report
http://www.dailytimes.com.pk/default.asp?page=2012\106\story_6-10-2012_pg5_11

KARACHI: The economy of Pakistan is still under threat and there are no evident measures being taken by the government to stabilise the economy of the country.

The government is busy in printing more currency in order to meet its expenses in the absence of revenue generation resources from taxes, privatisation and foreign aid, said business circles.

An official of International Monetary Fund (IMF) also expressed concern that the printing of currency was causing pressure on macroeconomic stability and accelerated core inflation accelerated to more than 12 percent. He said the government should stop subsidies to energy sector in order to save billions of rupees for development projects.

The foreign currency reserves of State Bank of Pakistan (SBP) are also on the decline, which could bring threat to the needs of funds for import and export purposes. The foreign direct investment (FDI) has been dropped to drastic level on unstable economic conditions besides some poor policies of government in macro financial sector.

The government is trying to print currency notes equivalent or more than 2.5 percent of the gross domestic product (GDP), as it has no concrete programmes ahead, said Pakistan Yarn Merchant Association executive body member Ghulam Rabbani.

The high government borrowing from SBP and commercial banks to meet transactions on the account of import bill payments and subsidiary on commodities is the root cause of inflationary conditions, he added.

In 2011-12, the higher oil imports and low cotton prices have led to a surge in trade imbalances and its impact is still on and the inflows through FDI and remittances offer little support to the economy.

The country’s external debt dynamics are challenging, with more than $4.8 billion of debt repayment due in FY13.

The large IMF debt payments and the country’s dwindling level of official foreign reserves have also increased the probability of a default. The key macro indicators are still weak as persistent inflation and pressure on the fiscal and current accounts, remain the key challenges for the economy.

Low investment and energy shortages have put pressure on direct economic growth and high fiscal deficit remains a major risk to the macro economy.

In terms of financing this gap, the government relied more on domestic sources as external financing dried up, he added.

There is greater reliance on short-term borrowing, which is creating liquidity management problems for the central bank.

The country will not achieve GDP more than 3-3.5 percent in the fiscal year 2012-13, he added.

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