2013.
Wathra said the impact of November policy rate cut on the economy is subject to a lag and various other factors continued to pull the headline inflation on annual basis down in December.
“This disinflation is broad based as both food and non-food inflation have been declining. The deceleration in the former is mainly the result of better supply conditions, while the latter is explained by a combination of factors, including plummeting international oil price as well as decline in other global commodity prices; lagged impact of earlier conservative monetary policy stance and moderating aggregate demand; and stable exchange rate,” he added.
REVISED INFLATION TARGET
Wathra said inflation is likely to decrease further going forward after a cut in domestic oil prices and its impact on transport services.
“Accordingly, SBP has revised downwards its forecast range for average CPI inflation to 4.5 – 5.5 percent for FY15, well below the annual target of 8.0 percent,” he added.
The governor said soft international oil price, through its expected favorable impact on trade balance, contributed in improving the external sector outlook in recent months.
A successful completion of fourth and fifth review under IMF’s $6.6 billion bailout package and last year’s issuance of international sukuk have also supported the balance of payment position.
“With IMF program on track and expected proceeds from privatisation and official flows, the net SBP reserves are projected to increase further,” Wathra said.
The governor, however, cautioned that delay in some planned privatisation proceeds and lack of private inflows “could pose risks in achieving a sustainable balance of payment position.”
Wathra stressed for policies and reforms to attract foreign direct investment and to exploit benefits from the recently granted generalised scheme of preferences plus status by the European Union.
REVENUE COLLECTION
The governor said the government borrowing from the SBP remained below the agreed targets in the first quarter of the current fiscal as government managed to contain expenditures related to public sector enterprises and at the same time increased the development spending.
“However, growth in FBR revenue collection moderated due to downward adjustment in petroleum prices and slowdown in large-scale manufacturing (sector),” he added. “Going forward, overall expenditures could increase due to higher security related expenditures. This, along with expected shortfall in FBR revenues, may make meeting the fiscal deficit target more challenging.”
He said expected external inflows are likely to reduce the budgetary borrowing requirements from scheduled banks and would improve liquidity conditions in money market.
“Availability of cheap raw material, low input cost, and healthy construction activity, as indicated by higher cement sale and steel production, are expected to benefit commodity producing sector,” he added.
Wathra said a limited impact of floods on rice and sugarcane crops and incentives for Rabi crops brightened the prospects for a better agriculture sector performance this fiscal year.
“In this backdrop, the real GDP is therefore expected to maintain the growth momentum achieved in the last year into FY15 as well”.