ISLAMABAD:
The Asian Development Bank (ADB) has asked Pakistan to stop power and
gas theft as an increase in their tariffs may increase inflation.
The Bank will provide Islamabad $3 billion over a three-year period, said its country director Werner E Liepach on Tuesday.“The ADB is going to disburse between $500 million and $600 million in the current fiscal year - before June 30. Further, we are expecting to provide between $900 million and $1 billion each year, over the next three years, in the shape of project aid and programme loans,” said Liepach, while addressing a news conference to launch the Asian Development Outlook (ADO) report for 2014.
According to the report, Pakistan’s economy is heading towards improvement and net international reserves held by the central bank will jump from $5 billion dollars to $9 billion within a few months. The ADB expects inflows from privatisation proceeds, foreign donors, the auction of 3G/4G licences as well as other measures.
Flanked by ADB’s economist Farzana Noshab, Liepach said that the bank had revised upward its GDP growth projection for Pakistan from 3 percent to 3.4 percent for 2013-14. This growth rate is marginally slower than the rate in FY13.
However, cautioned Liepach, inflation would rise to nine percent in FY14 as a consequence of the expected increase in the gas and electricity tariffs.“Things are improving,” he said, citing reasons for appreciating the government policies. “But Pakistan’s economy willhave to consolidate in 2014 and 2015 by pursuing reforms. And then the stage will be set for higher growth trajectory in the range of six to seven percent per annum in the subsequent years that can dent poverty and bring prosperity in the lives of the people of Pakistan.”
Liepach said macroeconomic and security challenges continue to weigh on the economy. Agriculture is expected to be weaker due to a drop in cotton output, which will partly offset the improvements in sugarcane and rice production. Ongoing rains, however, may benefit the upcoming wheat crop, despite a reduction in the sowing area this year.
However, the ABD believes that the pickup in large scale manufacturing, which grew by 6.7 percent during the first six months of FY14 (three times the rate during the same period a year earlier), may compensate for the weaknesses of the agriculture sector.
The report expects larger and more reliable power supply, partly due to better load management as well as the increasing use of alternative fuels. This, in turn, is expected to help revive the production of food, fertilisers, chemicals, electronics, and leather products, while petroleum refinery output will continue its robust growth.
Textiles are expected to stage a recovery from their weak growth trajectory due to the benefits of the Generalised Scheme of Preferences Plus status granted by the European Union to Pakistan from January 2014.
According to the report, in the first eight months of FY14, inflation averaged 8.6 percent, reflecting the one-percent increase in the general sales tax rate to 17 percent, increases in power tariffs in August and October 2013 for commercial and bulk residential and industrial users, and significant currency depreciation against the major currencies.
Reflecting the shortages in the supply of perishable items and higher wheat prices, food inflation rose to 13 percent in November 2013 before receding to 7.2 percent in January 2014, making for an average of 9.3 percent over the eight-month period. Core inflation was relatively stable and averaged 8.4 percent during the period.
Further adjustments to electric and gas tariffs, as well as a levy to support gas infrastructure development, are expected to keep inflation high over the forecast period, said the report. Average consumer price inflation is projected at nine percent in FY14 and 9.2 percent in FY15.
The authors of the report believe that achieving fiscal sustainability will remain a major challenge for policymakers in Pakistan.The report said that the fiscal discipline had eroded in recent years with the persistent need to finance expanding energy sector subsidies, growing losses incurred by state-owned enterprises and high expenditures for security.
Pakistan’s tax-to-GDP ratio stood at 8.5 percent in FY13, which is one of the lowest in the region and reflects structural and administrative issues, notes the report. As a result, spending for badly needed infrastructure has relied largely on foreign inflows.
Additional spending requirements have emanated from consecutive natural disasters in the past few years, as well as from the need to establish social safety nets, added the report.
Higher fiscal deficits and very limited foreign inflows during the past two years increased significantly short-term domestic borrowing, causing interest payments to balloon.Moreover, high government borrowing from commercial banks also contributes to low private sector credit.
The report noted that the domestic portion of public debt rose sharply for the second year in a row, from 38 percent of GDP at the end of FY12 to 41.5 percent in FY13, to finance high fiscal deficits.
Foreign debt fell by 4.6 percent of GDP in FY13, mainly as International Monetary Fund’s debt was repaid. Total public debt (including external liabilities) at the end of FY13 amounted to 63.3 percent of GDP, exceeding the legal limit of 60 percent set under the Fiscal Responsibility Debt Limitation Act of 2005.
The federal government is implementing its fiscal framework under the IMF’s 3-year programme.According to the ADB report, the implementation on fiscal framework in the aftermath of 18th constitutional amendment and NFC (National Finance Commission) Award is challenging.
Efforts would be required from federal and provincial governments alike, as some taxes (notably on agriculture) fall under provincial administration and reforms would help enhance their own revenues.
Currently, over 90 percent of provincial revenues are transfers of federal shared taxes. As provinces have assumed a greater share of federal resources and spending responsibilities through devolution, their fiscal performance has become even more important in relation to the national fiscal outcomes.
A mechanism to ensure provincial fiscal discipline is likely to be a crucial consideration in the upcoming discussions for the 2015 award, the report concluded.
The Bank will provide Islamabad $3 billion over a three-year period, said its country director Werner E Liepach on Tuesday.“The ADB is going to disburse between $500 million and $600 million in the current fiscal year - before June 30. Further, we are expecting to provide between $900 million and $1 billion each year, over the next three years, in the shape of project aid and programme loans,” said Liepach, while addressing a news conference to launch the Asian Development Outlook (ADO) report for 2014.
According to the report, Pakistan’s economy is heading towards improvement and net international reserves held by the central bank will jump from $5 billion dollars to $9 billion within a few months. The ADB expects inflows from privatisation proceeds, foreign donors, the auction of 3G/4G licences as well as other measures.
Flanked by ADB’s economist Farzana Noshab, Liepach said that the bank had revised upward its GDP growth projection for Pakistan from 3 percent to 3.4 percent for 2013-14. This growth rate is marginally slower than the rate in FY13.
However, cautioned Liepach, inflation would rise to nine percent in FY14 as a consequence of the expected increase in the gas and electricity tariffs.“Things are improving,” he said, citing reasons for appreciating the government policies. “But Pakistan’s economy willhave to consolidate in 2014 and 2015 by pursuing reforms. And then the stage will be set for higher growth trajectory in the range of six to seven percent per annum in the subsequent years that can dent poverty and bring prosperity in the lives of the people of Pakistan.”
Liepach said macroeconomic and security challenges continue to weigh on the economy. Agriculture is expected to be weaker due to a drop in cotton output, which will partly offset the improvements in sugarcane and rice production. Ongoing rains, however, may benefit the upcoming wheat crop, despite a reduction in the sowing area this year.
However, the ABD believes that the pickup in large scale manufacturing, which grew by 6.7 percent during the first six months of FY14 (three times the rate during the same period a year earlier), may compensate for the weaknesses of the agriculture sector.
The report expects larger and more reliable power supply, partly due to better load management as well as the increasing use of alternative fuels. This, in turn, is expected to help revive the production of food, fertilisers, chemicals, electronics, and leather products, while petroleum refinery output will continue its robust growth.
Textiles are expected to stage a recovery from their weak growth trajectory due to the benefits of the Generalised Scheme of Preferences Plus status granted by the European Union to Pakistan from January 2014.
According to the report, in the first eight months of FY14, inflation averaged 8.6 percent, reflecting the one-percent increase in the general sales tax rate to 17 percent, increases in power tariffs in August and October 2013 for commercial and bulk residential and industrial users, and significant currency depreciation against the major currencies.
Reflecting the shortages in the supply of perishable items and higher wheat prices, food inflation rose to 13 percent in November 2013 before receding to 7.2 percent in January 2014, making for an average of 9.3 percent over the eight-month period. Core inflation was relatively stable and averaged 8.4 percent during the period.
Further adjustments to electric and gas tariffs, as well as a levy to support gas infrastructure development, are expected to keep inflation high over the forecast period, said the report. Average consumer price inflation is projected at nine percent in FY14 and 9.2 percent in FY15.
The authors of the report believe that achieving fiscal sustainability will remain a major challenge for policymakers in Pakistan.The report said that the fiscal discipline had eroded in recent years with the persistent need to finance expanding energy sector subsidies, growing losses incurred by state-owned enterprises and high expenditures for security.
Pakistan’s tax-to-GDP ratio stood at 8.5 percent in FY13, which is one of the lowest in the region and reflects structural and administrative issues, notes the report. As a result, spending for badly needed infrastructure has relied largely on foreign inflows.
Additional spending requirements have emanated from consecutive natural disasters in the past few years, as well as from the need to establish social safety nets, added the report.
Higher fiscal deficits and very limited foreign inflows during the past two years increased significantly short-term domestic borrowing, causing interest payments to balloon.Moreover, high government borrowing from commercial banks also contributes to low private sector credit.
The report noted that the domestic portion of public debt rose sharply for the second year in a row, from 38 percent of GDP at the end of FY12 to 41.5 percent in FY13, to finance high fiscal deficits.
Foreign debt fell by 4.6 percent of GDP in FY13, mainly as International Monetary Fund’s debt was repaid. Total public debt (including external liabilities) at the end of FY13 amounted to 63.3 percent of GDP, exceeding the legal limit of 60 percent set under the Fiscal Responsibility Debt Limitation Act of 2005.
The federal government is implementing its fiscal framework under the IMF’s 3-year programme.According to the ADB report, the implementation on fiscal framework in the aftermath of 18th constitutional amendment and NFC (National Finance Commission) Award is challenging.
Efforts would be required from federal and provincial governments alike, as some taxes (notably on agriculture) fall under provincial administration and reforms would help enhance their own revenues.
Currently, over 90 percent of provincial revenues are transfers of federal shared taxes. As provinces have assumed a greater share of federal resources and spending responsibilities through devolution, their fiscal performance has become even more important in relation to the national fiscal outcomes.
A mechanism to ensure provincial fiscal discipline is likely to be a crucial consideration in the upcoming discussions for the 2015 award, the report concluded.
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