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Govt revenue 20.2 pc up in first six months

RECORDER REPORT

KARACHI: The first half of the current fiscal year indicates an improvement of 20.2 percent in government revenue and the State Bank of Pakistan (SBP) expects that the budget target of Rs.356 billion for the current year on pro-rata basis is likely to be exceeded. The outcome of the fiscal deficit will, however, depend on how far the government succeeds in containing its non-development expenditures, including interest payments, says SBP.

At a meeting of the Central Board of Directors, presided over by Governor Dr. Ishrat Husain, on Friday in Karachi, the fiscal position came under discussion. During the first six months, the Central Board of Revenue has collected around Rs.160 billion and the total revenue position is estimated at Rs 175 billion. Expenditure during this period is said to be around Rs 280 billion resulting in a deficit of Rs.105 billion which is equivalent of 3.3 percent of the GDP.

The SBP feels substitution of central excise duty and surcharges by sales tax has resulted in making this levy as the prime source of revenue.

The Board was informed that a declining trend in the rate of inflation during the first half of the current year continued and the Consumer Price Index (CPI) registered a growth rate of only 3.4 percent (on annualised basis) during July-December 1999, compared with 6.5 percent during the same period last year. This could be attributed to slower monetary expansion in the past, stable exchange rate and some what improved supply position. The decline in prices of variety of imports except petroleum products also contained the price increase.

During July-December 1999, says SBP, money supply increased only by 2.7 percent compared with a target of 9.4 percent for the entire year and 4.7 percent during the same period last year. There was also a change in the composition of money growth as the volume of currency increased significantly and the level of bank deposits declined.

Currency in circulation was sharply up by Rs 54 billion compared to a rise of Rs 28 billion in July-December 1998. Demand and Time Deposit shrunk by Rs.18 billion compared to Rs.15 billion in the same period last year.

Withdrawals due to avoidance of Zakat, purchase requirements for Eid-ul-Fitr and Y2K fears compounded together for the change in money supply. Withdrawals from resident foreign currency accounts and abolition of bank lottery schemes further aggravated the banking sectors liquidity position, says SBP.

Decline in interest rate caused a net withdrawal from the National Saving Schemes and encashment of old prize bonds was around Rs.5-6 billion more compared to purchase of new bonds in different denominations, said the central bank.

The Board was informed that net credit expansion to the private sector during the last six months was only Rs 28.7 billion compared with virtually twice the amount of Rs 56.6 billion in January-June 1999. The slower than expected net private credit expansion was due to uncertainty during most part of the first six months, high real lending rates, recovery efforts of the defaulted loans by the new regime, more cautious lending by banks, and a decline of credit requirements mainly of the textile sector due to low cotton prices and significant decline in the inflation rate.

The average lending rates have come down from 15.9 percent in December 1998 to 14.8 percent in November 1999 and 14.4 percent in December 1999. Rs 9.5 billion has been recovered by banks on defaulted loans and Rs. 12.7 billion loans rescheduled, says SBP. The SBP warns that the recent reduction in lending rates announced by the commercial banks may not automatically translate itself into revival of investment unless access to credit is broadened to include small and medium enterprises.

Despite less credit for export refinance and agriculture sectors the sectorial distribution shows a positive trend in July-December 1999 compared to the last year. Loans to small businesses aggregate Rs 2.3 billion compared to Rs.1 billion last year. Small scale industry borrowed Rs 2.4 billion as against Rs 0.8 billion in the same period and wholesale sector recorded Rs 2.3 billion bank credit as against a decline of Rs sss0.1 billion a year ago.

During July-December 1999 the external sector remained under pressure. The current account deficit, without official transfers, stood at $712 million in July-December, 1999 compared with $1,593 million during the same period last year, a contraction of over 55 percent. The improvement in current account deficit relative to last year mainly resulted from an increase of net receipts under private transfers, a reduction in trade deficit and a marginal decline of deficit on services account.

The trade deficit narrowed to $947 million during July-December 1999 from $1257 million during July-December 1998. Meanwhile an increase of $122 million in net private foreign investment, net outflows in the capital account stood higher by 25 percent to $1323 million during July-December 1999. The combined impact of the above development led to contraction in the overall deficit to $1,986 million in July-December, 1999 from $2,568 million in the same period of 1998.

In July-December 1999 home remittances declined to $518 million inclusive of cash of $488 million. In the same period in 1998, the cash amount was $458 million of the total home remittance of $581 million.