Swat war to bleed Pak, fiscal deficit to soar: top banker

Written by Hemang Palan | Rachana Khanzode | Mumbai | Updated: Jun 25 2009, 05:45am hrs
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Though Pakistans economy is poised to recover following the installation of the democratically elected Asif Ali Zardari government, but the war in the north-east will continue to bleed the country, with its fiscal deficit swelling by 0.3% in 2009-10, a top Pakistani banker said.

The additional expenses incurred due to rehabilitation of internally displaced people including Swat refugees will propel the fiscal deficit to 4.6% of the GDP in 2009-10 from last fiscals 4.3%, National Bank of Pakistan former governor Ishrat Husain told FE on the sidelines of the Emerging Markets Forum, partnered by the Express Group.

Pakistans defence budget in the last financial year was around 15% of the countrys expenditure which was largely spent on fighting militants along its northern frontiers bordering Afghanistan.

Husain said transition from the military government to civilian government in the recent past in Pakistan was not managed well thus impacting the countrys economy in the first year.

Pakistans GDP growth rate nosedived from 7% earlier to 2% in the concluded financial year. Also, our exports are not doing well because of the low demand in the international markets. However, the growth is expected to bounce back to around 4% in the current year due to a series of measure taken by the Pakistan government after the Zardari government settled down, Husain said. Public expenditure in human development and infrastructure in Pakistan is expected to push the GDP growth upwards in the current financial year, he adds.

On developing India-Pakistan trade, Husain, who along with former RBI governor Y V Reddy entered into an agreement to expand the banking network in both the countries, said that bilateral trade between the neighbours could expand to $5 billion annually, from the current $2.5 if banks in both the countries are allowed to penetrate each other territories. It is imperative for strengthening the trade relationship between both the countries, he said.