Source: Herald Tribune

Pakistan’s economy will expand by less than 6 percent for the first time in five years amid double-digit inflation and ballooning budget and trade deficits, the central bank said Saturday.

Economic problems are adding to the pressure on Pakistan’s new civilian government as it struggles for power with President Pervez Musharraf and tries to tackle Islamic extremism.

In a quarterly report released Saturday, the State Bank of Pakistan said the economy was showing “increasing signs of stress” as a result of both homegrown and international factors.

A disappointing wheat harvest will likely hold back the key agriculture sector, while chronic energy shortages — both households and businesses face regular power cuts — have hampered industries including steel and textiles, it said.

As a result, the central bank expects economic growth will come in between 5.5 percent and 6 percent in fiscal 2008, which ends June 30, down from 7 percent the previous year.

Pakistan is struggling to deal with the rise in prices of international commodities such as crude oil and foodstuffs.

The central bank forecast that inflation would reach between 11 percent and 12 percent this year, up from 7.8 percent in fiscal 2007. Inflation reached an annualized 17.2 percent in April — the highest level in 13 years.

Prices are rising fast partly because the government is reducing costly subsidies on fuel and foodstuffs.

The subsidies have contributed to the government’s rising budget deficit, which the central bank said would reach 6.5 percent to 7 percent. The deficit was just 4.3 percent in fiscal 2007.

The government is expected to present a budget in Parliament next month including unpopular tax hikes and spending cuts.

With imports rising faster than exports, the central bank said Pakistan’s current account deficit will rise between 7.3 percent and 7.8 percent — a record high.

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Tags: budget, central bank, civilian government, economy, Inflation, trade deficits