Islamabad, December 30:

Pakistan’s economy improved during the first quarter of the current fiscal, as did some macro-economic indicators that had steeply fallen in 2007-08, the State Bank of Pakistan (SBP) has said.

In its first quarterly (July-Sep) report, the SBP expressed hope that economy would stabilise despite lower than expected growth.

“The sense of crisis gripping Pakistan’s economy in the initial months of the financial year 2009 has visibly eased by November 2008, as the government moved to address the most immediate risks and entered into a macroeconomic stabilisation programme to support medium-term reforms under the aegis of the IMF,” said the report released today.

The fiscal performance improved consequent to the policy shift, with the overall fiscal deficit estimated to have dropped to one per cent of the annual GDP. This was consistent with the annual fiscal deficit target set under the IMF stabilisation programme.

The SBP said that reduction in fiscal deficit had been brought about mainly by a drastic cut in development expenditures. “The data available so far show that the government has made a fine start to contain the fiscal deficit. However, the fiscal improvement appeared to be largely based on reduction in oil subsidies and a cut in development expenditure,” Dawn Tuesday reported.

According to the July-Sep data, revenue grew by 24.4 per cent compared to 14.8 per cent in the corresponding period of the previous year. Similarly, exports increased by 12.7 per cent against 6.5 per cent of last year. The money supply was a negative 0.2 per cent while it was four per cent during the same period last year.

“On a positive note, both fiscal and current account deficits are estimated to improve in Fiscal Year 2009,” said the SBP.

Inflation remained the biggest challenge and was around 19.1 per cent on a 12-month average, it added. “The economy needs effective policies and implementation of reforms in Fiscal Year 2009 to regain macroeconomic stability in the midst of a challenging year. Real GDP growth is likely to be significantly lower than the annual target and inflation will breach its target with a wide margin,” the report said.