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
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
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
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.
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.