The economic growth has been faster than anticipated which has widened the trade deficit during the last five months, Finance Ministry Spokesman Dr Ashfaq Hassan Khan told Business Recorder in an interview here on Saturday. Commenting on the first quarterly report of the State Bank of Pakistan (SBP) (July-September), the spokesman said the SBP is an autonomous organisation and the government value its independent assessment of the economy.

He said the finance ministry concurs with the SBP assessment that the economic growth will be in the range of 7 percent, exceeding the target of 6.6 percent but the inflation rate will be around 6.5 to 7 percent during the 2004-05 FY.

With regard to $1.18 billion trade deficit during July-November 2004-05, Dr Ashfaq said it is not uncommon to see such a widening gap with the economic activity accelerating in any country.

He said Pakistan is witnessing an accelerated level of economic growth, much beyond the target of the current financial year.

Therefore, he said, the rising level of economic activity is bound to increase the demand for imports much faster than was anticipated.

He said this higher import is largely driven by 32 percent increase in the import of machinery and equipment, which is a good sign for the economy.

He said the government is confident that if this trend continued, Pakistan will attain the growth rate of 8 percent in next two years.

INCREASE IN OIL PRICES: About the recent increase in oil prices, the spokesman said for the past 7-1/2 months the government protected consumers in general and low-income segment of the society from the unprecedented and stubborn increase in the oil prices in the international market.

In doing so, it has taken the budgetary hit to over Rs 33 billions. This cost not only includes the loss of petroleum development levy (PDL) but also to a further subsidy on account of price differential claims of oil marketing companies and oil refineries.

He said fiscal prudence demanded that we review the policy in order to protect not only the federal budget 2004-05 but also the development budget, which has far-reaching beneficial impact for the economy as well as for the people.

Therefore, the spokesman said, it is in this perspective that the government decided to pass on a small fraction of additional cost to general consumers effective December 16, 2004.

He said this measure will have marginal impact on consumers as well as on the economy as the government will continue to absorb the substantial cost.

Copyright Business Recorder, 2005