DECLINING CURRENT ACCOUNT DEFICIT

POLICY RATE REMAINS UNCHANGED

AMANULLAH BASHAR (feedback@pgeconomist.com)
Feb
1 - 7, 2010

The current account deficit declined to $2 billion during first half of financial year 2010 from $7.8 billion in the same period of the previous financial year.

A small decline in exports was substantially offset by a higher decline in imports resulting in significant reduction in the trade deficit, however the sustained flow of workers' remittances $4.5 billion during first half of the current financial year further contributed to the reduction of the external current account deficit.

Though the declining imports helped narrowing down trade deficit yet it should not be taken as a positive sign for overall economic growth.

The central bank has projected the external current account deficit at 3.4 percent of GDP for the current financial year - a significant improvement over last year's deficit of 5.6 percent and earlier projections of close to 5 percent.

SBP Governor Syed Salim Raza while announcing the Monetary Policy statement said that as a result of significant contraction in the external current account deficit, the overall balance of payment has posted a surplus of $1.4 billion during H1-FY10 compared to a deficit of $4.8 billion in the first half of 2009.

A modest increase in foreign portfolio investment, additional SDR allocation, and SBA flows from IMF, more than compensated for the decline in foreign direct investment.

However, sustained improvement in the balance of payments would depend significantly on the timing and scale of projected foreign inflows, especially the official flows pledged in Tokyo by the Friends of Democratic Pakistan. "Assuming the revised financial inflows are realized, the SBP's foreign exchange reserves are projected to reach close to $15 billion by the end of the current financial year.

INTEREST RATE

The State Bank of Pakistan has decided to keep the policy rate unchanged at 12.5 percent. This was announced by the Governor, State Bank of Pakistan, Syed Salim Raza during the announcement of Monetary Policy Statement last week.

The macroeconomic stability has proceeded apace, as evident in the considerable decline in average Consumer Price Index inflation which is the primary objective of monetary policy. In the first half of the 2009-10 inflation was recorded at 10.3 percent, compared to 24.4 percent during H1-FY09, he said and added that this decline is visible across almost all the subgroups of CPI.

"The inflation outlook for full FY10, nevertheless, remains somewhat vulnerable to the effects of fiscal consolidation efforts and to incipient international commodity price pressures," he said and added that the State bank expects the average CPI inflation for FY10 to remain between 11 and 12 percent, still much lower than the 20.8 percent inflation of last year, but higher than the 10.3 percent recorded in the first half of FY10.

Talking about the real economy, SBP Governor said that the agriculture sector had shown improvement and the wheat crop was good with higher prices stimulating demand for consumer goods, and the cotton crop higher than last year improving textile production and corresponding exports. Modest but consistent recovery in Large-scale Manufacturing (LSM) is also encouraging, he said and added that the LSM grew by 0.7 percent in November 2009 compared to a low of negative 20 percent in March 2009.

"Revival in private sector credit and better-than-expected global recovery should further support economic growth," he added.

Assuming that the current trend in LSM growth continues, the Governor said and added that the overall real Gross Domestic Product growth is expected to be 3.0 - 3.5 percent in FY10, as compared to 2.0 percent in FY09.

On the fiscal front, the federal government has continued efforts for rationalizing expenditures, by phasing out subsidies and by adjusting the administered energy prices. "It has also taken in hand the organizational and administrative measures to bolster tax administration and revenue collection," he added.

"The State bank has managed system's liquidity to both support smooth functioning of the market and to do this consistent with the monetary policy stance. As a consequence, volatility in the inter-bank overnight money market Repo Rate - the operational target of SBP - has come down substantially and market interest rates have gradually eased in line with reduction in the Policy Rate."

Integrating projections for balance of payments, fiscal accounts, and credit growth and given their interrelationships with inflation and real GDP projections, the equilibrium M2 growth is forecasted to be around 14.5 percent for financial year 2010.

While summing up the overall macroeconomic scenario, Raza said that much has been gained with respect to macroeconomic stability front on a challenging economic and security environment. Difficult decisions have been taken and adjustments were made to address a host of structural constraints, he said.

"However, work remains to be done to consolidate this stability and set the stage for sustainable recovery. At the short term, we would want to see a reversion of the current inflationary up tick, and a more certain outlook for system's liquidity," Raza asserted.

SAMSUNG'S 3D TV PANELS

Samsung Electronics Co., Ltd, global leader in display technology and digital media, has commenced production of 3D LED and LCD TVs making it the first company to venture in the field of 3D technology. The company began producing LED and LCD compatible panels for 40-inch, 46-inch and 55-inch full-HD 3D TVs using '3D Active Glasses' this month, employing Samsung's exclusive true 240Hz technology.

Samsung's true 240Hz technology delivers full-HD viewing in 2D, and also smooth, natural, full-HD 3D images that can vividly capture rapid movements. "Recently, 3D displays have captured the industry spotlight," said Wonkie Chang, president of the LCD Business at Samsung Electronics. "Samsung Electronics aims to lead the global 3D TV panel market in pioneering panel mass production for 3D LED and LCD TVs."

Samsung has reduced the response time of its LCD and LED panels by 20 percent to less than four milliseconds, eliminating any interference between left and right eye images. With this improved response time, Samsung is able to achieve natural 3D images and also deliver 2D pictures capturing rapid movement with exceptional clarity.

By incorporating true 240Hz technology, operating at 240 frames per second, Samsung's panels deliver a more lifelike picture with alternating left and right eye images through the use of 3D Active Glasses technology.

Samsung's new 3D Active Glasses technology first blocks the left and then right lens, causing a momentary lag when images are shown to each eye to achieve more lifelike 3D images. The term, '3D Active Glasses,' was selected as an official term by the Glasses Standardization Working Group of the Consumer Electronics Association (CEA) earlier this year.

According to a market research firm, DisplaySearch, the 3D display market is expected to grow from $902 million in 2008 to $22 billion in 2018. Specifically, the 3D TV market is expected to expand to a $17-billion market, with sales increasing from 200,000 units in 2009 to 64 million units 2018.