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  • Dec 12th, 2006
  • Comments Off on ‘Political unrest, twin deficit major challenges to economy’
Pakistan fiscal side is expending as on the monetary side there is no room as investment cycle has slowed. In order to keep growth in the economy, the government is likely to increase its fiscal expenditure, especially on the development side, and that would lead to an increase in fiscal deficit.

Besides, the 2007 election is an immediate major challenge for the economy. One should expect the exiled leaders to return, which might create political unrest and, probably, affect the production side. These views were expressed by KASB Securities group economist, Muzzammil Aslam, in an interview with Aaj TV 'Money Matters' program.

He said that election outcome was important as economic growth is subject to continuation of recent policies and the ongoing reforms. About economic performance he said that for the last three years Pakistan's economic growth has been strong.

The economy recovered in 2004 and picked up pace and in 2005 it registered 8.6 percent growth rate. In 2006 the economy slowed down and registered 6.6 percent growth. Amid capacity utilisation of industrial sector was almost 90 percent whereas agriculture sector witnessed a blip due to high base effect.

He said that in 2007 growth would exceed 7 percent target against market consensus of 6 to 6.25 percent, due to turnaround in agriculture sector, which is likely to register a 4.5 percent growth.

Industrial sector is likely to expand by 10 to 11 percent growth, whereas services sector is expected to perform well and is likely to register a growth rate of 8 percent.

On the outlook of second quarter of current fiscal year he said that going forward economic growth would continue. It will be the wheat crop that would drive the sentiment of the economy. A bumper crop and high wheat prices internationally would give buying power to farmers and with money in their pocket they would have demand for goods and services, which would drive the manufacturing sector. "So, in terms of growth, second half of the fiscal year seems stable."

In terms of macro economic stability, he said there might be some surprises. "Fiscal deficit is the talk of the town. It is election year; the government is likely to spend lavishly. Besides, talks are already underway for reducing oil prices. Expectations are that they will keep it lower to have good numbers in masses.

Moreover, current account deficit and the exchange rate policy are two other major factors to watch. All in all, there will be some surprises as far as our macroeconomic numbers are concerned." The program will continue the discussion on these questions, and researchers from JS, BMA, AKD and Arif Habib Securities are scheduled to participate in it during the current week.

Copyright Business Recorder, 2006


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