Pakistan's central bank warns of macroeconomic imbalances: report

Pakistan's central bank, the State Bank of Pakistan (SBP), has warned that in the fiscal year 2006-07 beginning from July 1, there was a clear need for corrective policy measures to protect long-term growth prospects of Pakistan's economy, newspapers reported on Sunday.

The emerging macroeconomic imbalance risks included the possibility of an increase in inflationary pressures, gradual weakness in fiscal indicators, and the widening of the current account deficit, the SBP said in a quarterly report for the fiscal year 2005-06 released on Saturday, the newspaper The Nation reported.

The SBP revealed that the pressure on the country's external account had increased substantially during the last fiscal year because of the sharp rise in current account deficit, the Daily Times reported.

The central bank said that the current account deficit had swollen to a historic peak of 4.1 billion U.S. dollars by the end of April in the fiscal 2005-06, significantly higher than 0.9 billion dollars' deficit in the corresponding period of the fiscal 2004-05, according to Daily Times.

"As a percentage of gross domestic product (GDP), the annual current account deficit is estimated to have risen from 1.4 percent of GDP in the fiscal 2004-05 to 3.2 percent of GDP in the fiscal 2005-06, indicating that a continued weakening could raise grave risks to the hard-won macroeconomic stability achieved in recent years," the SBP was quoted as saying.

The SBP report said that a major share of the trade imbalance came from sharply rising oil import bills due to high oil prices, and from large machinery imports, according to Daily Times.

The report said that the retention of a tight monetary stance since April 2005, supplemented by administrative measures to improve supply of key commodities, contributed to a significant decline in the volatility of inflation from July 2005 to May 2006, and it also helped keep the average inflation rate within the stipulated target of eight percent during the period.

The SBP report said that monetary measures taken by the State Bank and other measures were needed to correct the imbalances, according to the Nation.

Source: Xinhua