Pakistan was gripped by rising inflation: SBP report


By Ashraf Khan
June 06 - 12, 2005



he planners of the country are likely to pledge two-third of next years' development budget exclusively for human and physical infrastructure.

Ashfaque Hasan Khan, Economic Advisor to the Government of Pakistan said "roughly two-third of the development budget would go to physical and human infrastructure," Khan said while confirming over Rs300 billion public sector development plan for the fiscal 2005-06.

"The biggest challenge for us in the coming budget is to sustain growth momentum. We would focus on improving physical infrastructure, human development, education and health and the budgetary allocations for these sectors would reflect marked improvement in these sectors.

Growing criticism over government's failure in trickling down the growth fruit to poor segments of society is also likely lead them to take effective steps in that way. "We also want that the present growth momentum should be translated into job creation so that lower segment of society could benefit of the growth," he said.

"On the education side our focus would be on vocational training to fill the skill gap in industrial sector. We aim to develop 300,000 skilled workers in the next year." For inflation, he said that the government has already taken steps to bring down inflation. "It is food-related inflation and we are focusing on augmenting supply. In this regard we have already allowed duty free import of foodstuff from regional countries."

"Wheat makes an important part of food-related inflation and due to our measures its price has witnessed four percent decline in May. "We are hoping it will come down and I am sure it will be in single digit in the next fiscal year."

The budget would also reflect a visible shift towards development in livestock sector, which has been neglected in the past and contributes very little in the economy. 30 to 35 million people directly or indirectly are dependents of livestock and tapping this sector could bring about radical improvement.

Pakistan is also expected to increase its defence budget while faced with challenges of rising inflation and interest rates but pledge to fight grinding poverty by spending higher on the social uplift for the fiscal year to June 2006.

Prime Minister Shaukat Aziz's government is scheduled to present federal budget in the national assembly on June 6 for the year 2005-06 with a reported outlay of over Rs1000 billion ($16.7 billion) as compared to Rs903 billion in the current fiscal.

"A considerable increase in defence budget is imminent because for past few years it has not been increased in real terms," an official said requesting anonymity. However, he did not give the size of the increase.

For the current fiscal, the government had allocated Rs193 billion ($3.22 billion) slightly up by Rs13 billion compared to previous fiscal year.



Pakistan's Minister for State on Finance refrained to confirm upfront. "No comment," Omar Ayub Khan, the State Minister, said in a telephonic conversation from Islamabad but spontaneously said, "we will not compromise our defence capabilities and national interests." Pakistani defence expenditures come under severe criticism as it takes away huge chunk of nation resources leaving insufficient means for social sector while one-third of 150 million population still living below poverty line.

Upbeat on the back of robust economic growth which may touch to 8.3 percent against the projected target of 6.4 percent for the current fiscal, Shaukat Aziz's cabinet, however, would gear up its efforts to tackle inherent challenges of weak social and physical infrastructure.

"With the grace of Allah, we would grow at the rate of 8.3 percent this year and ready to meet challenges of infrastructure lag and the forthcoming budget would be a pro-growth one," said Khan, who will read out the budget in the assembly. National Economic Council (NEC) of Pakistan has approved Rs300 billion development budget, which is 48.5 percent more for the year to June 2006, compared to Rs202 billion for the current year.

"We will concentrate on (supply) of clean drinking water, technical education, rural credit and creating jobs," he said. The budgetary measure may help create 300,000 jobs next year, he said.

Critics doubt on the government capabilities to effectively utilise the development budget and tackle the macroeconomic challenges lying ahead.

"The real problem is utilisation of the development funds and in Pakistan this rate is abysmally low and this higher development budget becomes meaningless," said associate professor of finance and economics at Institute of Business Administration (IBA) Masood Qazi.

"Situation is quite bleak as a recent report of (central) State Bank has indicated and poverty is on rise as international institutions are pointing at and the inflation is a direct hit to country's poor," said Qazi, who is also a researcher as well.

State Bank of Pakistan, which brought out its periodical report on country's economy last week said Pakistan was gripped by rising inflation which could pose a serious challenge to its economy. The inflation rate surpassed 11 percent after the consumer price index hovered between none and 10 percent through most of 2004-5. "The most important thing to be seen is as to how the government trade-off between growth and inflation," commented Sustainable Development and Policy Institute (SDPI) consultant on economy, Moeed Yusaf.

Economic planners, however, complacent with measures they have lately taken to curb rising inflation.

"40 percent inflation has come from food components and way have took steps to beef up supplies lines and they (importers) are opening L/Cs to import food items daily," Khan said.

Pakistan has lately allowed import of potatoes, onion, livestock imports from neighboring India to conform supply with demand despite its own agriculture sector has substantially exceeded the annual target of four percent.

"The next few months will be critical to determine whether inflationary pressures are receding as a result of the measures taken to augment supplies of critical food items," the bank said.