Apr 07 - 13, 2008

The political headwinds accompanied by global pressures affected the real Gross Domestic Product (GDP) growth to downward in the range of 6.0-6.5 percent on one hand while pushing up the inflationary pressures to 9 percent during fiscal year 2008.

According to second quarterly report issued by SBP, "This below target growth nonetheless remains strong." It said an unanticipated strength in international commodity prices is mainly responsible for cost push driven inflationary pressures in the economy and added these pressures further intensified due to strong aggregate demand amidst a continuing fiscal stimulus. "As a result, it is likely that FY08 inflation would be in the range of 8.0-9.0 percent, significantly above the target of 6.5 percent for the year," it added.

Pakistan's economy continues to show resilience to domestic and international shocks. Although these shocks have taken their toll, the economy is expected to turn in a reasonable growth performance during the current fiscal year (2007-08), albeit substantially lower than target. This observation was made in the Second Quarterly Report for FY08 of the State Bank on the State of Pakistan's Economy.

The growing macroeconomic imbalances, particularly the widening fiscal and current account deficits continued to create complications and add to inflationary pressures. On the other hand, Pakistan has so far largely been untouched by the continuing turmoil in the international credit markets. It said the rise in the fiscal deficit during first half (July-December) of FY08 has more troubling implications than the increase in the previous year. The modest increase in the fiscal deficit during the preceding two years had been relatively less troubling, as (1) revenue growth had remained strong, and (2) rise in spending essentially reflected the impact of post-earthquake relief and reconstruction (excluding this, the fiscal deficit remained below 4.0 percent of GDP); these substantive expenditures would fall sharply in a few years, it added.

Reducing the fiscal deficit in the remaining part of the fiscal year will thus be challenging, but is nonetheless essential, the Report said and added that support to aggregate demand due to fiscal deficit contributed directly to a rise in monetary aggregates, raising inflationary pressures, complicating monetary management, and stoking the growth of the current account deficit.

The combination of rising fiscal deficit and weak external receipts has pushed the government borrowings from SBP to a record Rs 359.3 billion during July-1st March FY08, compared to only Rs 25.6 billion in the corresponding period of last fiscal year. "This has been instrumental in sustaining the growth in broad money (M2) for the period at 17.6 percent YoY, significantly offsetting the central bank's efforts to tighten monetary policy," the Report added.

The information available by mid-February 2008 suggests that agriculture sector is likely to record reasonable growth during the fiscal year. Prospects of achieving the targeted 4.8 percent growth for the year, however, remain dim, largely due to disappointing performance of cotton and rice crops.

The large scale manufacturing (LSM) has been encountering headwinds since the start of FY08. Domestic as well as external factors are responsible for the relatively slower growth in this sector compared to the stellar performance of preceding years. These factors include: the continued strong increases in the international commodity prices, domestic energy woes and dampened demand (particularly for textile exports). Economic losses in the aftermath of December 27, 2007 have further weakened the chances of meeting the annual target. Overall, the slowdown in LSM during H1-FY08 was broad based and was seen in 11 out of 15 industrial groups.

Most of the indicators for the services sector suggest robust growth in this sector during the first half of FY08. Wholesale and retail trade seems likely to perform well given a significant increase in imports (which accounts for more than half of the value addition in this sub-sector). "This sub-sector is also likely to benefit from expansion in the network of domestic and foreign chain store," the Report added.

Recent global financial crisis, especially in the US as well as increase in cost of production due to rising energy prices does not bode well for the export demand of various domestic products.

Improvement in competitiveness of domestic products will remain a key factor in determining the industrial expansion going forward. It poses a serious challenge to the newly elected government to look into and enable the industrial products to face the headwinds.

The direction of monetary policy at home and global economic outlook will also significantly influence the economic performance. There is an immense potential for expansion in the industries that have the economies of scale to compete globally.

It is sure that in the face of rising global competition the economic managers will have to seriously focus on encouraging industries towards economy of the scale by offering them an environment free from bureaucratic impediments. Talking the issue of harassment by a large number of agencies just for personal gains always discourage the industries to flourish and to ensure flawless infrastructural facilities. Without giving paramount importance to supply of uninterrupted power supply at an affordable price to make the life easy, the desired results would remain a distant dream otherwise.



Airblue, Pakistan's fastest growing airline, has announced plans to reconfigure its cabins by providing an additional 23% economy seats on each flight to meet the growing market demands for air travel.

Effective from May 1, 2008, Airblue will be expanding its economy cabin to the full aircraft.

The airline recently made news for expanding its fleet with the purchase of 14 brand new Airbus A320s. The plans of Airblue reflect anticipated increased demands for affordable, comfortable travel, with more in-flight amenities and more destination options.

"Airblue has always been committed to setting a higher standard for air travel, and that now includes world class economy class," says Mr. Nasir Ali, Managing Director Airblue. "Today's passenger is savvy and expects a higher standard of economy travel. We are meeting that challenge and aiming to set the standard even higher," he added.

The new aircraft will continue to redefine expectations, by offering video-on-demand and other amenities typically associated with more expensive, business-class service. Airblue passengers already enjoy one of the most comfortable economy cabins in the industry, with extra legroom seating, in-flight entertainment, and complimentary meal, snack and beverage service.

The shift to all-economy seating allows the airline to open up inventory while continuing to offer some of the most competitive fares in the industry. The current fleet of Airblue will be reconfigured to accommodate this higher standard economy class cabin.

Over the past three years, Airblue has grown to be the largest private airline in Pakistan, introducing innovations for greater customer convenience such as e-ticketing, wireless mobile check-in and self check-in kiosks.

Airblue currently has the youngest fleet in Pakistan and with 3 A320 and 3 A321 aircraft operate flights to 6 major domestic cities in Pakistan; and 3 daily flights to Dubai from Karachi, Lahore, Islamabad and Peshawar, as well as a daily Flight between Manchester and Islamabad. Future expansion plans include flights to UK, Scandinavia, Gulf, Middle East, India, and Bangladesh.