A huge 27 per cent increase in tax revenue to Rs374 billion along with Rs60 billion savings through cuts in expenditure lowered fiscal deficit in the first quarter of this fiscal year to 1.1 of GDP from 1.6 per cent in the year-ago period.

This trimming also helped the government retire its highly inflationary loans from the central bank and meet its budgetary requirements through borrowings from commercial banks, non-bank borrowings from National Saving Schemes and from individuals and corporate investment in treasury bills.

Because of this and due to improvement in supply of non-food items consumer inflation has come down. These developments along with sustained growth in exports and home remittances and introduction of lax monetary policy-happening during the first quarter-have set the stage for higher economic growth in this fiscal year than in the previous year.

Government officials say the recent floods would peel off half a percentage point from the targeted growth of 4.2 per cent. But IFIs like the World Bank and Asian Development forecast maximum 3.5 per cent growth in FY12.

Meanwhile, expanded trade deficit after the recent floods, fall in September inflows of remittances compared to August, continuing decline foreign investment and widening of the current account deficit amid heavy external debt servicing, pose challenges to the economy.

Electricity shortages and consequent violent protests across the province of Punjab in September have subsided to some extent for the time being. But fall in supply of gas ahead of winter, increase in fertiliser prices and flood-sparked damages suffered by agriculture in Sindh can impede a desired growth of agriculture and industries.

However, the output of cotton crop is still 13 per cent higher than in the last year, new support prices of sugarcane and wheat are expected to go up and industrialists look satisfied with 150 basis points slashing in the SBP key policy rate for October-November. Draining out floods water from fields is a big challenge for farmers preparing to sow wheat. But desert ponds filled again with rain waters have brightened the prospects of better care of livestock and higher output of minor crops.

"Sowing has, however, begun in some parts of the country and an expected upward revision in its support price, from Rs950 to Rs1150 per 100-kg, may help in meeting wheat output target of 25 million tonnes this year," says a former wheat commissioner of the ministry of food and agriculture.

The fact that Pakistan fared fairly well without a single dollar from the IMF during the entire last fiscal year and in the first quarter of this year have emboldened policymakers to focus on their look towards east policy. The moves made in this regard include cautious yet brisk steps to deepen economic relationship with India and the measures adopted to invite increased Chinese and Iranian foreign investment into the country. Trade relations with Turkey, Indonesia, Malaysia, and, within the Saarc region, with Afghanistan and Bangladesh continuing to expand.

Large-scale manufacturing has shown signs of growth and the trend is expected to continue after decline in interest rates.

Floods have hit agricultural and livestock sectors, cotton output target of 15 million bales looks unlikely, rice production is on track but sugarcane production may also fall. And all this may have their ramifications for the external sector trade and impact directly on growth rates of food and textiles exports.

However, a jump in exports of non-traditional items of exports, diversification in export markets, improved ways of exportable production and favourable international market conditions continue to support exports. On import side, much of growth is in food sector chiefly because of the floods but imports of other sectors have also showed signs of expansion.

Trading Corporation of Pakistan is also going to import 0.7 million tonnes of urea to overcome fertiliser shortages.

With Baqra Eid just three weeks away, trading of sacrificial animals have started giving boost to domestic economy. Besides, official measures taken to curb smuggling of live animals to Iran, Afghanistan and India and the recent move to block clearance of goods imported under Afghan Transit Trade without insurance guarantees would also help in facilitating domestic trade


World-Grain