The State Bank of Pakistan (central bank) forecasts that the coming year will see a return to higher economic growth. In its annual report, the bank says gross domestic product (GDP) growth for the financial year ending 30 June 1993 sank to 3 per cent, the level of population growth. This meant per capita income did not rise for the first time in several years.

The bank attributed this to a decline in agricultural production, largely due to damage to the cotton crop by heavy floods and a leaf virus; political uncertainty in the second half of the financial year; and no growth in exports for the first time in several years, due to the world recession and increased competition from other textile exporters.

While exports remained constant, imports rose by almost 10 per cent, leading to a 41 per cent rise in the trade account deficit to Rs 3,100 million ($104 million).

'Fiscal policy has been one of the weakest areas of economic management,' the report says. The budget deficit rose to Rs 107,700 million ($3,600 million), or 7.9 per cent of GDP. This was mainly the result of high defence expenditure, which accounted for a third of the total spending, and interest payments amounting to a quarter of total spending.

A rise in public and private borrowing has brought total debt to 86.1 per cent of GDP, slightly more than half of which is domestic debt. This has increased inflation, the bank says. The official figure for inflation in the 1992/93 financial year is 9.3 per cent, but the central bank agrees with economic analysts that the actual figure is higher.

The bank says the reforms and tight demand management policies implemented so far appear to be leading to higher output growth, lower inflation and an improved balance of payments.