"Cement prices remain inexplicably high," notes SBP, in its State of Pakistan''s Economy report released here on Saturday. Expressing concerns over an increase of 17.3 percent in cement prices during July-November FY12 over the same period last year, SBP has highlighted that this increase arose despite "a reduction on cement taxes and only 10.7 percent increase in coal prices during the period".
High prices of building materials coupled with the strain of sales tax on already hurting sectors are expected to dent the growth of the manufacturing sector during FY12. The LSM sector has registered growth of 2.1 percent in the first quarter of the current fiscal, compared to a 2.9 percent decline over the same period last year. Lower duties on beverages, automobiles, cement and air conditioners provided fiscal support to this sector; while "a marginal improvement in export demand for value-added textiles and leather helped these industries," according to SBP.
But SBP has warned that growth in the LSM sector may not be sustainable in coming months as the low base effect brought on by last year''s floods withers away in subsequent periods.
The agriculture sector also appears to be stuck in the woods. Expressing concerns over government''s ability to set a higher procurement target for wheat, the report highlights that the "government is already struggling to settle the outstanding obligations from previous years".
Floods in central and southern Sindh have also caused substantial crop losses, particularly to cotton crops. "However improved water availability, introduction of better yielding variety of rice and the increase in the wheat support price are likely to help the agriculture sector achieve its target for FY12," the report says.
Highlighting the importance of investments in spurring economic growth, the central bank has stressed that power and transportation infrastructure "should have top investment priority". While appreciating recent efforts to commence the construction of new dams, bridges, highways and other projects; the SBP report laments "in most cases, progress has been very limited". Due to the laggard pace of new projects, softening of international commodity prices and energy constraints in the local economy, the report asserts that, "realising the 4.2 percent growth target for FY12 GDP looks difficult".