KARACHI: Leading economists and experts termed the annual report of the State Bank of Pakistan for Fiscal Year 2014, contradictory and an effort to defend the stance of the Finance Ministry on macroeconomic developments in FY14.
The report called FY14 a better year for the economy and asserted that tangible improvement was witnessed in the national economy. The report said that foreign exchange reserves were improved tangibly, fiscal deficit was down, inflation remained lower than expected, private sector credit improved while the government successfully contained current account deficit. However, the economists and analysts said that the report contradicted its own data, and even some analysis.
They pointed out that the growth rate was shown to be 4.1 percent in FY14 compared to 3.7 percent in the preceding year was based on official national accounts statistics. They cited Institute for Policy Reforms headed by Dr Hafiz Pasha to have proved that growth rate for FY14 was blown up through fudged figures of production in the manufacturing sector and that the actual rate of growth was lower than even the previous year.
The data in the SBP report seems to confirm that assessment. It shows that growth in the agricultural, mining and quarrying and services sectors actually declined in FY14 compared with FY13, and production bottlenecks created by the shortage of gas and electricity and deterioration in the law and order situation continued to inhibit economic activity in the manufacturing and cement sectors, which have been shown to grow faster than last year.
The independent analysts claimed that total investment declined from 14.6 percent of the GDP in FY13 to 14 percent in FY14 and fixed investment came down from 13 percent to 12.4 percent. The national savings rate was lower at 12.8 percent of GDP in FY14 compared with 13.5 percent in FY13 and domestic savings as a percentage of GDP declined to 7.4 percent in FY14 from 8.3 percent in FY13.
Similarly they pointed out that the rise in foreign exchange reserves came about mainly because of larger foreign borrowing, sale of national assets to foreigners and a one-time grant by the Saudi government, rather than through improvements in the fundamentals of the balance of payments. These inflows were also partly used to appreciate the nominal exchange rate that hurts exports.
Imports increased by 3.7 percent while exports grew by 1.6 percent increasing the trade deficit by 7.1 percent to $16.5 billion in FY14. The balance on the service account deteriorated by 63 percent and that on primary income by 5 percent. The increase of 14 percent in home remittances, which have nothing to do with government policies, contained the current account deficit to $3 billion. Even then, it was 20 percent higher than that in FY13.
They said that in the area of budget, the SBP towed the line of the Finance Ministry that its deficit had been brought down from 8.2 percent of GDP in FY13 to 5.5 percent in FY14.
