Pakistan risks hike in inflation, decrease in revenue collection

* ADB says rebuilding of circular debt, less foreign inflows and increase in development expenditures could surpass budget deficit targets

ISLAMABAD: The Asian Development Bank (ADB) on Tuesday warned that there is a possibility of increase in the budget deficit and inflation and less-than-projected revenue collection in the ongoing fiscal year, 2013-14. .
During the ADO 2014 launch media briefing, ADB Country Director Werner E Liepach and senior economist Farzana Nosheem informed media that rebuilding of circular debt, less-than-projected foreign inflows and increase in committed development expenditures could surpass the budgetary target of budget deficit. Similarly, upwards rebound in inflation to 9% due to possible increase in power tariff, depreciation and low inflows of Coalition Support Fund could fuel inflation.
Asian Development Bank’s flagship report Asian Development Outlook (ADO) 2014 has revised its earlier Pakistan’s gross domestic product (GDP) growth forecast from 3% of the GDP to 3.4% of the GDP. However, this 3.4% of the GDP forecast is below the government’s budgetary growth target of 4.4% of the GDP for the ongoing fiscal year 2013-14.
GDP growth is projected at 3.4% for FY2014, marginally slower than in FY2013. Agriculture is expected to be weaker due to a drop in cotton output, which partly offset the improvement in sugarcane and rice crops. Ongoing rains, however, may bene?t the upcoming wheat crop, despite a reduction in the sowing area this year. Expressing satisfaction over the building of foreign exchange reserves with contributions from friendly countries, they also warned that risk remains, in case the government failed to realise the budgetary foreign inflows.
Although Pakistan has received handsome contributions from friendly countries to build foreign exchange reserves, private inflows like foreign direct investment, non-debt creating foreign inflows are needed in consistent manners to rebuild the country’s foreign exchange reserves, they added. They said that Pakistan is expecting the World Bank, Asian Development Bank, Islamic Development Bank and IMF inflows. The World Bank and ADB are going to provide budgetary support. Pakistan is also expecting Coalition Support Fund and privatisation proceeds along with auction of 3G to help government rebuild its official reserves.
However, the ADB country director said that privatisation proceeds may not come as quick as expected by the economic managers. They were appreciative of appreciation of Pak rupee against US dollar. They termed increase in exports and imports as a positive sign in economy and said that appreciation of Pak rupee would not hurt Pakistan’s gains from GSP+ incentives. 
The ADB country director said that the ADB has provided Pakistan $150 million so far and would provide $400 million as budgetary support and $500 million as project financing during the ongoing fiscal year. In the next three fiscal years ADB would provide $3 billion to Pakistan, with $1 billion each as project financing and budgetary support. They informed that although the tax revenues are below expectation and there is Rs 30 billion shortfall in revenue collection, government has not indicated any downwards revision in tax collection target fixed for the ongoing fiscal year.
ADB Country Director Werner E Liepach said that although the ADB has given a positive outlook, ongoing fiscal year is difficult year as fiscal adjustment is taking place, consolidation is underway and growth momentum to improve in next fiscal 2014-15.

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