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Finance Minister Chairs Monetary and Fiscal Policy Board Meeting

Islamabad: A meeting of the Monetary and Fiscal Coordination Board was held under the chairmanship of Federal Minister for Finance, Economic Affairs, Statistics and Planning and Development Dr. Abdul Hafeez Shaikh here today. Other members of the Board present in the meeting were Minister for Commerce Deputy Chairman Planning Commission, Governor SBP, and Secretary Finance.

The Finance Minister in his opening remarks stated that it is an important meeting to share assessment of the current economic situation and bring consistencies in economic targets and see how we can adopt optimal utilization of policy measures.

Finance Secretary presented an overview of the current economic situation and informed that due to better crop position and positive growth in LSM sector the growth target could end up close to 4%. Due to government’s facilitation in the agriculture sector, improvement in supply situation, reduced budget deficit and borrowing from SBP has helped to bring inflation down to single digit i.e.9.7% in December 2011, while food and non-food inflation also stood at 9.5 and 9.9% respectively. WPI and SPI also are in single digit at 8.3 and 3.0%, respectively. Core Inflation also declining but remained at 10.1%.

The external sector has witnessed a positive growth such as remittances reached to $6.3 billion, an increase of 19.5% as compared to the last year, the exports reached to $ 12.1 billion in H1FY12 which is 9.1% higher than last year and imports reached to $ 19.7 billion. Likewise, the current account balance registered surplus of $160 million in December 2011.

The revenue collection is showing remarkable growth of 27% and stood at $ 840.1 billion in the first half of the current financial year. The government is also working on expenditure management strategy, austerity measures, reforms in public sector enterprises etc which will have a positive impact on the economy. Expenditure in first six months was only 45% of total expenditure.

The improved revenue and expenditure performance have led to containment of fiscal deficit at 2.6% of GDP against the target of 4.7% and actual of 2.9% in the first half of last year. This performance is more impressive when viewed in relation to provincial surpluses, which were negative Rs. 5 billion compared with Rs.76 billion (0.4% of GDP) in the H1 of 2010-11.

On the monitoring and fiscal side it was noted that SBP has reduced the policy rate to 12% which is helping the investment in private sector as credit expansion to private sector has increased to Rs.169.3 billion against Rs.123.2 billion in first half of FY 11.

The SBP borrowing of Rs.120 billion at the close of first half was temporary and will soon be retired. Net foreign financing to budget has been positive (Rs.20 billion) but more foreign resources were required to reduce burden of government borrowing on domestic sector. The rising of international fuel prices was also highlighted as a concern which may affect balance of payment and could deteriorate the external position.
The Board noted that the economic outlook of Pakistan was stable despite challenges. The renewal of growth, decline in inflation, contained fiscal deficit, healthy BOP position and continuation of reforms especially in the power sector have contributed to this stability.

The challenges are energy shortages and mobilization of foreign financing. The key foreign flows relating to auction of 3G license, CSF receipts and privatization proceeds will be realized during the second half and cover the foreign financing gaps. The Board also noted that IMF’s $ 1,2 billion which will be returned in H2 are fully budgeted.

The Finance Minister expressed the hope that the deliberations of the Board will lead to better economic coordination and that the challenges facing the economy will be coped in a coordinated manner by all the institutions involved.

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