KARACHI: The country’s economy grew by five per cent during the first quarter of the current fiscal year, but the State Bank believes that the full year growth will remain between three and four per cent.

In its report for the first quarter (July-September) issued on Friday, the SBP said the International Monetary Fund (IMF) was even more sceptical and envisaged a growth of only 2.8pc.

A bleaker picture is about the rising fiscal gap. The government is striving hard to keep it within the limit set by the IMF.

The SBP forecast for the full-year fiscal deficit is in the range of 6 and 7pc of GDP.

The estimate is significantly higher, particularly in the wake of 8pc fiscal deficit in FY13 (last financial year), which was bitterly criticised by the present government.

It promised to bring down the gap to about5 per cent.

The fiscal deficit fell to 1.1pc of GDP in Q1-FY14 (first quarter of the financial year 2013-14) from 1.2pc during the same period last year.

This improvement was recorded on both revenue and expenditure sides.

Tax revenues increased by 19pc in Q1-FY14, compared to 10.3pc in the corresponding quarter last year.

‘While the upward trend in tax collection is expected to continue in the second half, a major positive will be inflows under the CSF (Coalition Support Fund) and 3G licence auction,’ the SBP report said, adding that interest payments were likely to increase in the second half of the current fiscal year.

The industrial sector will continue its impressive performance for the rest of the year, but agriculture will remain subdued because ofa decline in cotton production and below-the-target sugarcane production.

In the services sector, some improvement is visible in telecommunications due to better financial position of PTCL this year.

There is some increase in value-addition by wholesale and retail trade following a rise in industrial production.

‘In order to maintain the current growth momentum and to take the economy to a higher growth trajectory, the government should speed up structural reforms in fiscal and energy sectors,’ the report suggested.

The policy mix which delivered the better fiscal outcome in Q1-FY14 may not be sustainable in the medium-to-long term.

Tougher decisions on energy prices and institutional reforms have yet to be taken and legal complications related to higher prices add to the challenges facing the government.

The report said public debt posted a record increase of Rs1 trillion during the first quarter.

The increase, however, does notrepresent thefiscal imbalances alone, which recorded only a modest increase.

‘Instead, this increase can primarily be traced to large revaluationlosses associated with the external debt stock due to adverse exchange rate movements during the period,’ the report said, adding that repayments on externaldebtcaused a strain on the country’s foreign exchange reserves. These declined by $1.2 billion in the first quarter.

‘As a result, the rupee depreciated by six per cent against the US dollar during Q1-FY14, compared to only 0.3 per cent in the first quarter of the previous year.

The report said that since the industrial sector had revived, import pressures reappeared, especially for capital goods and raw materials.

The import of petroleum, machinery and metal was particularly strong.

This trend raised the trade deficit by $0.6 billion during the first quarter of 2013-14 over the same period in 2012-13.

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