47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Pakistan Economic Survey 2011-12general ban was placed on recruitment andpurchase of durable goods. Official transportassigned to entitled officers of BPS-20 to 22 wasmonetized to reduce expenditure on POL andrepair and maintenance as well as drivers. Subsidyexpenditure was rationalized. As a result of theseefforts, overall fiscal deficit was at 5.0 percent ofGDP in July-April 2012 against 5.5 percent ofGDP of the comparable period of last year. It isnoteworthy that containing the deficit during theperiod under review was quite challenging as theburden of financing fell directly on domesticsources due to the non materialization of externalinflows.Unlike the past, it was for the first time in manyyears that Public Sector Development Program didnot face any cut. Despite huge financialconstraints, the Government made a special effortto fully fund the PSDP. Accordingly, Rs. 304billion were released that facilitated in completionof 200 projects. The Government efforts can begauged from the fact that Rs. 2.2 trillion wereprovided during the last four years for PSDP.Money and Credit: The SBP lowered the discountrate by cumulative 200 bps points to 12 percentduring the first half of fiscal year 2011-12 in linewith inflationary trend in the country. During thefirst eleven months of the current fiscal year (June2011-11 th May 2012) broad money (M2) witnessedan expansion of 9.1 percent as compared to 11.47percent as compared to last year. The decelerationin money supply is primarily driven by thesignificant fall in the Net Foreign Assets of thebanking system along with increased governmentborrowing and a one-off settlement of circulardebt. Net Domestic Assets (NDA) during July2011 - 11 th May 2012 stood at Rs. 880.9 billionagainst Rs. 481.6 billion during the same periodlast year. The expansion in NDA is mainlycontributed by a rise in demand for private sectorcredit and government borrowings. Conversely,Net Foreign Assets (NFA) witnessed a contraction.During July2011-11 th May, 2012, credit to theprivate sector witnessed a net increase of Rs. 234.8billion compared to Rs. 107.8 billion in the sameperiod last year. Year-on-year growth in privatesector credit was up 7.5 percent by 11 th May, 2012.The weighted average lending rate (including zeromark-up) on outstanding loans stood at 12.8percent while the weighted average deposit rate(including zero mark-up) stood at 6.98 percent inMarch 2012. This resulted in a spread of 5.8percent. The decline in the weighted averagelending rate is due to the lag involved incontracting fresh loans in the new declininginterest rate environment and the decline in banksreturn on government securities. It is pertinent tomention that since the SBP was following a tightmonetary policy till August 2011 and the interestrates were moving up, the banking spreadremained high.Capital Markets: The KSE 100 index stood at12,496 on June 20, 2011. It crossed the barrier of14,000 and closed at 14,618 on 7 th May, 2012, thehighest level seen in last four years showing agrowth of 17 percent over the closing index of lastfinancial year. The Government has now leviedCapital Gain Tax on securities. The net investmentby the foreign investors in Pakistan’s StockMarkets during July-March, 2011-12 reflected anet outflow of US$176 million. This indicates thatbullish trend observed in Pakistani equity market isdue to the restoration of the confidence of localinvestors and institutions. During fiscal year 2011-12, the leading stock markets indices of the worldobserved mixed trends with negative growth of18.1 percent in China to 19.03 percent positivegrowth in case of Philippines. Pakistani Stockmarket performed well as compared to markets ofthe world during the current fiscal year. This wasmainly due to the steps taken by the government toboost the confidence of the equity market investorswhich included reforms in the Capital gains tax,etc.The Government has enacted Stock Exchanges(Corporatization, Demutualization and Integration)Act, 2012 which will further strengthen thecountry’s stock markets. The law requires stockexchanges to be demutualized within 119 days ofits promulgation in accordance with timelinesspecified for completion of various milestonesinvolved in demutualization exercise.Corporatization, demutualization of stockexchanges would entail converting their structurefrom non- profit, mutually owned organization tofor-profit entities owned by shareholders.iv