PR No.205 Finance Minister Chairs Monetary And Fiscal Policies Co-Ordination Board Meeting Islamabad: March 23, 2016

A meeting of the Monetary and Fiscal Policies Coordination Board was held under the chairmanship of Federal Minister for Finance, Economic Affairs, Statistics and Privatization Senator Muhammad Ishaq Dar here today.

The meeting was attended by Minister for Commerce, Khurram Dastgir , Secretary Finance, Dr. Waqar Masood Khan, Governor State Bank of Pakistan, Ashraf Mahmood Wathra, Former Governor SBP, Dr. Ishrat Hussain, Vice Chancellor PIDE, Dr. Asad Zaman, and other senior officers of Finance Division.

The Finance Minister welcomed the participants and highlighted that Monetary and Fiscal Policies Coordination Board is an important body to meet on quarterly basis to review the current economic situation to bring consistencies in monetary, fiscal and exchange rate policies and among macro-economic targets of growth, inflation and fiscal, monetary and external accounts.

Finance Minister stated that due to better policies of the government 4.24 percent GDP growth was achieved in 2015 which is the highest growth during last 7 years. We have targeted our growth at 5.5 percent for 2016. Early indicators of the commodity producing sector suggest that the economic growth is picking up modestly.

The growth momentum in Large Scale Manufacturing (LSM) continued to remain strong duly supported by better energy supplies; lower commodity prices; and accommodative polices. The sector was able to record a growth of 4.12 percent during Jul-Jan FY 2016 compared to last year growth at 2.15 percent. The year on year growth in January 2016 recorded at 5.0 percent compared to 1.52 percent last year.

Low prices of international commodities particularly oil and subdued monetary expansion along with contained budgetary borrowings from SBP coupled with better supply of commodities in the market despite rains and floods resulted in the decline of CPI inflation during July-Feb 2015-16 at 2.48 percent compared to 5.45 percent. The other inflation indicators such as Food, Non-Food, Core, SPI and WPI are also lower compared to last year.

The external sector is also stable. Current account has posted surplus of $157 million in February 2016 and during the period Jul-Feb, 2015-16 current account deficit narrowed to $1.859 billion compared to $1.947 billion last year on account of stable exchange rate, remarkable reserves and healthy growth of remittances despite high base effects of last year. Workers’ remittances have surged by 6.1 percent to reach 12.714 billion in the first eight months compared to $11.986 billion of last year. The foreign exchange reserves which were at the lowest level in February, 2014 has been increased to $20.508 billion as on 21st March 2016. Pakistan’s foreign exchange reserves are expected to increase more than $ 22 billion.

The Secretary Finance gave a detailed briefing on economy. The meeting was apprised that macroeconomic indicators continued to show positive growth. LSM growth is picking up. The industry specific data shows that a number of sector performed well during July-January 2016, such as Automobile grew by 31.42%, Fertilizers 14.60%, Chemicals 11.44%, Rubber products 9.83%, Non-Metallic Mineral products 7.64%, pharmaceuticals 6.65%, Core and Petroleum products 4.85%, Food Beverages 2.23%, Textile 0.95%, Cement dispatches have increased to above 16%. The other positive development is the increase in growth of Machinery import by 8% which show signs of development activities. Moreover, the electricity and gas supplies also increased by 6 and 4 percent, respectively, over last year.

The credit to private sector has witnessed expansion of more than 100% during July to 4th March 2015-16 over last year. With this trend in expansion of credit to private sector it is very likely that private sector investment will record its first uptick after several years. Similarly, public sector development spending also increased to Rs.700 billion during FY 2016 which will support public sector investment. All monetary aggregates are moving in comfortable zone.

The FBR revenue is continuously rising. During July-February 2016 it increased by 17.2%. It is expected that there will be steep rise in coming months.

The meeting was also informed that FDI also improved by 4.8 percent during July-Feb. 2015-16 over last year. In total the country was able to attract $103 million in foreign direct investment in Feb. 2016, up by around 16 percent year on year and by over four times when compared to Jan. 2016. The total FDI to date has reached $647.9 million compared to $619.6 million last year.The capital market performance is remarkable and our PSX index is better than many capital market of the world.

The debt sustainability indicators also improved. The total public debt was Rs.14,318.4 billion comprising of external public debt of $48.13 billion (Rs.4,796.5 billion) and domestic public debt of Rs.9,521.9 billion in 2013. During the period from July 2013 to December 2015, the total public debt has grown to Rs.18,467.3 billion out of which the external public debt is $53.36 billion (Rs.5,589.2 billion) while domestic public debt is Rs.12,878.1 billion, there is a net increase of Rs.4,148.9 billion in total public debt, inclusive of $5.23 billion of external debt.

Moreover “Refinancing Risk of the Domestic Debt Portfolio” was reduced through lengthening of the maturity profile at the end of June 2015. Percentage of domestic debt maturing in one year was reduced to 47 percent compared with 64 percent at the end of June 2013. “Exposure to Interest Rate Risk” was also reduced, as the percentage of debt re-fixing in one year decreased to 40 percent at the end of June 2015 compared to 52 percent at the end of June 2013 and “Share of External Loans Maturing within One Year” is equal to around 28 percent of official liquid reserves at the end of June 2015 as compared to 69 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity.

The Governor SBP informed that the 320 basis point reduction in policy rate has led to doubling of credit disbursement to private sector in the current fiscal year and a welcome development is the rise in credit disbursement for fixed investment. It appears that many firms are expanding their operations by availing fixed investment loan.

The Minister for Commerce on the occasion commented on the Strategic Trade policy framework (STFP) 2015-18. He said the STPF is amid at achieving marked improvement in exports. It has identified four pillars i.e. products and market diversification, market access, institutional development and strengthening and trade facilitation. They are stringently focused on international recognition, value addition, branding campaign and certifications. The processes have already been designed and ready to implement.

Dr Ishrat Hussain appreciated the performance of the government and suggested that it should be properly disseminated for the general public to mitigate the negative perception.

The Finance Minister at the conclusion of the meeting added that government is taking all steps to further build on the economic gains it has made and would pursue the objectives of growth, employment generation and poverty alleviation.