09-11-2010, 05:38 PM
<font size="3"><center>Weâre looking at 0% GDP growth and 25% inflation</center></font id="size3">
Monday, August 23, 2010
By Mehtab Haider
ISLAMABAD
According to a highly dismal, but realistic assessment made by the Ministry of Finance, Pakistanâs economy is faced with 0% GDP growth and a galloping inflation of 25% in the financial year 2010-11, it was learnt.
Prior to the floods devastation, a GDP growth target of 4.5% had been fixed while inflation was to be brought down to 9.5% from the current inflation rate of 12.3%. The report states that the wiping out of the 4.5% GDP growth target translates into a Rs751.5 billion loss to the economy.
An official document, prepared by Economic Advisorâs Wing of Ministry of Finance under supervision of Principal Economic Advisor Sakib Sherani to assess the adverse impact of the ravaging floods, was also presented to top economic wizards led by Minister for Finance Dr Abdul Hafeez Sheikh. The report (a copy of which is exclusively available with The News) reveals that the initial first estimate (based on sketchy information to date from the field) on the impact of economic growth in 2010-11 suggests that overall GDP growth could be zero percent in real terms, i.e. a deviation of negative (-4.5%) from the target.
The summary titled âPakistan Floods 2010 A Preliminary Look at the Macroeconomic Impactâ states that the unprecedented scale and magnitude of the devastation caused by the floods is going to leave a very substantial imprint on the economic landscape in the short as well as medium-term.
As the crisis is still continuing, the official document states, assessments are very preliminary and hence subject to further revision. âHowever, it is clear that the ongoing natural calamity will have a âfull spectrumâ effect on macroeconomic environment, impacting economic growth, inflation, the fiscal position, balance of payment, employment, incomes and livelihood, and povertyâ.
This massive adverse impact on GDP growth is amplified by two factors as according to the Economic Advisorâs Wing of Ministry of Finance, the substantial impact on cotton crop caused by this devastating flood, which continues to command a dominant position in the economy (according to regression analysis done by Economic Advisor Wing) the size of cotton crop explains around 40 percent of overall GDP growth in the year.
The impact of floods on farmer incomes and the wider rural economyâ-which was a key driver of aggregate demand in the economy in last two decades was the second factor impacting growth prospects, the document further stated.
While there are potential offsets that could mitigate the indicated overall, upper bound, impact on growth, such as government spending, reconstruction, and cotton import by the textile industry, the nature, magnitude and timing of some of these mitigating factors remains uncertain, it also states.
Of greater potential concern, according to Ministry of Finance, is the fact that unlike October 2005 earthquake, which left the countryâs economic infrastructure unscathed, the floods of 2010 have affected a substantial stock of the countryâs physical and social infrastructure such as roads, bridges, and communication network, power sector assets (generation, transmission and distribution), schools and health facilities, the irrigation infrastructure etc.
âFor 2010-11, our current inflation forecast based on set of assumption is estimated at around 25 percent (year-on-year),â the report stated, and added that greater import of essential items however, combined with lower international commodity prices and some possible exemptions on moving to full cost recovery tariffs in electricity, is likely to significantly lower the full year inflation impact.
While rebuilding and reconstruction could represent potential opportunities for boosting growth in the short run, âat the same time there is a significant risk of Pakistanâs potential output having been impacted negatively by the scale of destruction and damage to its stocks of physical and social capitalâ.
Principal Economic Advisor to Ministry of Finance Sakib Sherani, told The News on Sunday evening that it was the âextreme scenarioâ projected by the Economic Advisory Wing on the basis of initial assessment. He said that earlier it was assessed that the flood would cause 1 to 1.5 percent decline in GDP growth but there were estimates that the whole projected growth of 4.5 percent could be impacted by massive destruction caused by floods.
Monday, August 23, 2010
By Mehtab Haider
ISLAMABAD
According to a highly dismal, but realistic assessment made by the Ministry of Finance, Pakistanâs economy is faced with 0% GDP growth and a galloping inflation of 25% in the financial year 2010-11, it was learnt.
Prior to the floods devastation, a GDP growth target of 4.5% had been fixed while inflation was to be brought down to 9.5% from the current inflation rate of 12.3%. The report states that the wiping out of the 4.5% GDP growth target translates into a Rs751.5 billion loss to the economy.
An official document, prepared by Economic Advisorâs Wing of Ministry of Finance under supervision of Principal Economic Advisor Sakib Sherani to assess the adverse impact of the ravaging floods, was also presented to top economic wizards led by Minister for Finance Dr Abdul Hafeez Sheikh. The report (a copy of which is exclusively available with The News) reveals that the initial first estimate (based on sketchy information to date from the field) on the impact of economic growth in 2010-11 suggests that overall GDP growth could be zero percent in real terms, i.e. a deviation of negative (-4.5%) from the target.
The summary titled âPakistan Floods 2010 A Preliminary Look at the Macroeconomic Impactâ states that the unprecedented scale and magnitude of the devastation caused by the floods is going to leave a very substantial imprint on the economic landscape in the short as well as medium-term.
As the crisis is still continuing, the official document states, assessments are very preliminary and hence subject to further revision. âHowever, it is clear that the ongoing natural calamity will have a âfull spectrumâ effect on macroeconomic environment, impacting economic growth, inflation, the fiscal position, balance of payment, employment, incomes and livelihood, and povertyâ.
This massive adverse impact on GDP growth is amplified by two factors as according to the Economic Advisorâs Wing of Ministry of Finance, the substantial impact on cotton crop caused by this devastating flood, which continues to command a dominant position in the economy (according to regression analysis done by Economic Advisor Wing) the size of cotton crop explains around 40 percent of overall GDP growth in the year.
The impact of floods on farmer incomes and the wider rural economyâ-which was a key driver of aggregate demand in the economy in last two decades was the second factor impacting growth prospects, the document further stated.
While there are potential offsets that could mitigate the indicated overall, upper bound, impact on growth, such as government spending, reconstruction, and cotton import by the textile industry, the nature, magnitude and timing of some of these mitigating factors remains uncertain, it also states.
Of greater potential concern, according to Ministry of Finance, is the fact that unlike October 2005 earthquake, which left the countryâs economic infrastructure unscathed, the floods of 2010 have affected a substantial stock of the countryâs physical and social infrastructure such as roads, bridges, and communication network, power sector assets (generation, transmission and distribution), schools and health facilities, the irrigation infrastructure etc.
âFor 2010-11, our current inflation forecast based on set of assumption is estimated at around 25 percent (year-on-year),â the report stated, and added that greater import of essential items however, combined with lower international commodity prices and some possible exemptions on moving to full cost recovery tariffs in electricity, is likely to significantly lower the full year inflation impact.
While rebuilding and reconstruction could represent potential opportunities for boosting growth in the short run, âat the same time there is a significant risk of Pakistanâs potential output having been impacted negatively by the scale of destruction and damage to its stocks of physical and social capitalâ.
Principal Economic Advisor to Ministry of Finance Sakib Sherani, told The News on Sunday evening that it was the âextreme scenarioâ projected by the Economic Advisory Wing on the basis of initial assessment. He said that earlier it was assessed that the flood would cause 1 to 1.5 percent decline in GDP growth but there were estimates that the whole projected growth of 4.5 percent could be impacted by massive destruction caused by floods.