THE SBP’s third quarterly report for the outgoing fiscal on the state of the economy does not make us any wiser. Much of what it says is already known. Yet it does underline the serious challenges facing the economy, and suggests a few measures that are crucial in terms of heading off any further economic downturn. The SBP has knocked down the GDP growth estimate to 5.5-6.0 per cent — well below the original target of 7.2 per cent — from an earlier projection of 6.5-7.0 per cent in December owing to “broad deterioration in the key macroeconomic indicators due to a combination of adverse domestic (political volatility, energy crunch, price inflation, water shortage, etc) and global developments (rising oil and food prices, global financial crisis, etc)”. For the first time in five years, the economy will grow at less than six per cent.
While domestic factors are to blame for substantially lower growth in the manufacturing and agricultural sectors, escalating global oil and food prices have skewed the fiscal balance. The budgetary gap and the current account deficit are set to rise to seven per cent and just below eight per cent of GDP respectively. Price inflation is running into double digits, adding to the economic woes of the common man, and other economic indicators have deteriorated sharply. Though the situation may look quite dismal as the current economic impasse seems to be bordering on stagflation, all is not lost. The economy isn’t going to unravel any time soon. The problem could still be salved. A policy focus, as suggested by the SBP, on regaining macroeconomic stability through corrective measures could quickly reinvigorate growth momentum. That requires the government, in the short term, to cut down unproductive expenditure and reduce its dependence on borrowings from the SBP for financing the budget, as well as to address structural weaknesses hampering the expansion of the industrial and agricultural sectors. The budget for the next financial year will be a test of the government’s commitment to addressing the increasing fiscal imbalances and reviving the economy.
Dawn
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