KARACHI: The State Bank warned on Friday that despite some positive economic indicators fiscal deficit could be in the range of 6 to 7 per cent of GDP for the current financial year, even if the country received the coalition support fund and proceeds from 3G licence before July.
In its second quarterly report for the fiscal year 2013-14 (FY14) issued on Friday, the SBP said higher development expenditure and an anticipated increase in debt servicing would push up overall spending in the second half of FY14.
It expressed concern over the performance of the Federal Board of Revenue and said the annual revenue target could not be met this year. The half-yearly target was missed by Rs80 billion. “This implies that tax collection needs to grow by 36.6 per cent in the second half of FY14 to meet the full year target which appears difficult,” the report said, adding that non-tax revenue was also on the lower side.
The SBP cautioned that inflation would remain in the range of 8.5 to 9.5pc “unless the government announces an increase in household gas tariff, which was due in January”.
Because of a decline in cotton production, the prospects of achieving the GDP growth target in FY14 could be undermined, the report said, adding that growth was likely to remain in the range of 3.5 to 4.5pc this year. The main concern is a weaker than expected performance of the agriculture sector.
The report said the large-scale manufacturing (LSM) sector was showing improvement because of an increase in credit to the private sector. LSM continues to post strong growth which bodes well for the country’s overall economic growth.
The SBP said that if expected official external inflows were realised in the second half of FY14, its foreign exchange reserves would exceed initial projection for the full year.
The report traced the recent comfort on the external side to an unanticipated $1.5 billion inflow into SBP’s reserves. “Along with dampening inflationary expectations for the remaining part of FY14, this has changed the market’s interest rate outlook,” the report said.
The government was not able to contain its borrowing from the SBP within the limit agreed with the IMF, it added.
The SBP expressed concern over Pakistan’s debt profile and said its composition had witnessed a sharp shift towards shortest tenor. “This exposes the government to increasing rollover and interest rate risks.”
According to the report, government borrowing from commercial banks also increased in the second quarter. It mobilised Rs188.1bn from commercial banks against a net retirement of Rs179.1bn in the first quarter.