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1- INFLATION UNDER CONTROL
2- PAKISTAN IS BECOMING A CHINESE SHOWROOM?
3- TFCS: SLOW PACE OF GROWTH
4- RE-STRUCTURING THE CBR
5- FUTURE DIRECTION OF EQUITIES MARKET
6- PAKISTAN AND E-READINESS

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INFLATION UNDER CONTROL

 

Despite huge capital inflow

 

By AMANULLAH BASHAR
Aug 11 - 17, 2003
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The Consumer Price Indicator (CPI) inflation is being projected to remain below 4 per cent during the current financial year 2003-04.

The factors played significant role in keeping the inflationary pressures under control are including adequate food supplies at home and lower world prices of imports of raw material and other equipment. Strong fiscal management policies of the government also played significant role to check inflation. However, had the utilities prices were also brought in line with actual purchasing power of the consumers, the rate of inflation would have gone much lower as compared to the existing 4 per cent estimated by the official sources.

Infact, it is the non-food items prices which push the rate of inflation on the higher side in Pakistan. The economic manager should look deeply into the after effects of the exorbitant electricity prices causing multiplier effects on the general prices in Pakistan.

Despite substantial capital flows which resulting in monetary expansion to the level of 16.4 per cent during recently concluded financial year, the effective fiscal management helped the economy keep the rate of inflation below 4 per cent in Pakistan.

This certainly seems to be the outcome of good economic decision and policies, yet the external factors also contributed to check the inflationary pressures.

According to official figures released by the State Bank of Pakistan, the monetary expansion between July 2002 and June 2003 was estimated at 16.4 per cent which in net terms come to Rs289.3 billion against a revised monetary expansion target of Rs212.8 billion or 14 per cent in the corresponding period last year.

During the period foreign exchange reserves continued to grow due to sustained rise in workers home remittances and other inflows and increased by 66.8 per cent to $10.726 billion that is worth almost to one year imports bills of the country.

The Central Bank's policy of sterilization also helped containing the monetary expansion effectively. If the monetary impact of these purchases had not been partially sterilized the actual monetary expansion would have been around 44.1 per cent instead of 16.4 per cent.

Coming back to the point of rate of inflation, the following factors likely to keep inflation under control during the current financial year as well: Global recession and risk of deflation in the US, Europe and Japan, appreciation of Rupee vis-a-vis US dollar, low international prices of imported goods and commodities, availability of adequate food supplies, stable petroleum prices, lower fiscal deficit and lower credit demand of public enterprises and autonomous bodies.

TREND

CPI inflation continued to decelerate and remained under the current-year target of 4 per cent despite a massive monetary expansion of 16.4 per cent during out going financial year.

The inflationary tendencies remained in check on account of stable and appreciating rupee dollar parity and better food supplies. According to official figures, the CPI inflation stood lower at 3.21 per cent during the said period.

 

 

Although, the non-food component of CPI basket witnessed a notable price increase during last fiscal year, yet that was neutralized by declines in the prices of food component of the basket between the same period, claimed official sources.

The price index of non-food items showed a rising trend this year primarily due to steady rise in the prices of POL products and eventually rising transportation cost. However, average food prices this year came down despite rising prices of wheat, flour, rice and edible oil.

CPI inflation is projected to remain low and stable at 4 per cent during the current financial year 2003-04. The ongoing sterilization and strong rupee together and sufficient supply of food would definitely contain inflationary pressures and make it possible to achieve the target of keeping the inflation within control.

GLOBAL FACTORS

The global economy continued to show weakness and the recovery is not in sight yet. It is most unlikely that the recovery will take place by the end of this financial year. Despite sluggish world growth and high risk of deflation, Pakistan's economic performance during the outgoing financial year 2002-03 was much better. The actual GDP growth turned out to be 5.1 per cent compared to the target and projected rate of 4.5 per cent. The growth was broadbased and uniformly spread across the three major sectors: Agriculture, manufacturing and services.

Higher major food crops output added to supplies and do not pose any serious concern despite lower than expected wheat crop. Imported inflation remained subdued to lower world prices of petroleum products and raw materials and gradual appreciation of rupee exchange rate. Broad money supply expanded in excess of the target but as it was caused by autonomous capital flows from Pakistan workers abroad did not affect inflationary expectations.

Outlook for the current financial year is promising and there are strong indicators that with the arrival of foreign investment in various projects especially newly developed port city of Gwadar, energy sector, enhanced activity in the construction sector are altogether expected to paint a positive picture of the national economy in Pakistan.