The Ministry of Finance fears greater risks to real GDP growth, reveals a report on "overview of economic condition". The report was submitted to the Finance Minister by the office of Economic Advisor's Wing, which was headed by Saqib Sheerani, the them Principal Economic Advisor of the Ministry of Finance.
The magnitude of the seasonal gas shortage facing the industrial sector, which has peaked this winter, is likely to prove disruptive to output growth, especially in process industries. Going forward, growth and fixed investment will be increasingly constrained by the scale of government sector bank borrowing as well as by the continuation of the circular debt in the energy sector.
Sources revealed that the report was to be released but its dire prognosis has possibly led to a delay, a decision taken reportedly by the high-ups of the Ministry of Finance. However, an official on condition of anonymity told BR that Prime Minister Syed Yousuf Raza Gilani was informed about the report's prognosis during a presentation by the economic team.
The economic team reportedly expressed concern over the possibility of a decline in agriculture output due to a long dry spell and argued that the continual power and gas loadshedding would have a negative impact on industrial growth. The economic team is said to have told the Prime Minister about the rising pressure on the fiscal side and warned him that things may worsen in a couple of months if remedial measures are not taken to mobilise resources to minimise and contain the fiscal deficit.
The report, a copy of which is exclusively available with Business Recorder, maintained that a broad range of recent data confirms that overall economic activity has been slowing over the past few months. Led by lower output in cotton yarn, petroleum refining, steel, and cement, production in the Large Scale Manufacturing (LSM) sector contracted -3.6 percent in August and -2.6 percent in September, the first negative data points since September 2009. In absolute terms, the Quantum Index of Manufacturing (QIM) is at its lowest level since at least October 2006.
After a sharp deceleration in September, growth in exports bounced back in October and November, with a 26 percent and 17 percent year-on-year increase respectively. However, almost the entire increase is attributable to textile exports, which have benefited from surging international prices, and which, in turn, have more than compensated for sharply declining export volume.
Imports, however, are indicating a 'soft patch' in economic activity, with import of capital goods having declined in September as well as October. The change in capital goods imports for July to October was recorded at 2 percent. Adjusted for mobile phone handset imports, however, import of capital goods had declined 1 percent for the period.