Quake, low agri output stymie growth at 6.6%
Bureau Report

KARACHI—Pakistan’s Gross Domestic Product (GDP) growth rate during the financial year 2005-06 remained at 6.6 percent despite October 8 earthquake, agricultural production remaining short of expectations and the persistent high international oil prices.
Governor State Bank of Pakistan (SBP), Dr. Shamshad Akhtar, while presenting the Annual Report for the fiscal year 2005-06, told this. SBP Governor said that the overall rate of inflation during the fiscal year 2005-06 remained below the target of 8 percent, as it worked out to 7.5 percent only in the wake of the better monetary policy of the Central Bank. However, the prices of daily use items hiked, she said
Shamshad Akhtar during the press conference further told that the trade deficit due to rising imports jacked up to $8.4 billion, double than the government’s set target. However, the financing account closed in surplus due to better financing position of the government, while on the other hand, investment rate in GDP during the same period stood at 20 percent. Shamshad Akhtar further told that the administrative expenses of the government during this period witnessed a whopping rise, which was a matter of concern. However, the government borrowings from the Central Bank for meeting the budget deficit remained behind the set target, she added.
Shamshad Akhtar during the press conference cautioning the banks asked them to increase their profit rates given to their depositors, otherwise, the Central Bank would be constrained to take action against them. The State Bank of Pakistan has projected the real gross Domestic Produce (GDP) growth for the fiscal year 2007 close to the 7 percent annual target, mainly contributed by a recovery in agriculture and industry as well as yet another robust performance by the services sector. According to the SBP’s annual Report 2005-2006, released here Saturday, the recovery in agriculture is expected to be underpinned by strong wheat and sugarcane harvests, which would offset the reported losses to the FY07 cotton harvest due to untimely rain. Similarly, a small resurgence in large-scale manufacturing is expected to pull-up industrial growth in FY07.
The Report also revealed the possible up-gradation of country’s sovereign rating which both Moody’s as well as S&P have recently indicated was under review. However, the continued strength of aggregate demand, together with the government’s evident inability to reduce domestic prices of petroleum products indicates that average CPI inflation may remain above the 6.5 percent annual target. Explaining the key elements that were taken into consideration while making these projection, the Report pointed out that the risk of reversal of the downtrend in house rent index (HRI) inflation in H2-FY07 due to the high international commodity prices (e.g. steel) and sustained robust domestic demand for construction inputs (timber, metal, copper, etc.); and the risk of a rise in food prices following strong domestic demand of some key staples such as milk, and an uptrend in international prices of key food items.