Tough times, tough decisions ahead; GDP growth 2pc; public debt crosses 7 trillion mark; external debt $51 bn; official inflation 23pc; real poverty 30pc
By Khalid Mustafa
The government has missed virtually every main macro-economic target set in the budget 2008-09 for the outgoing fiscal. This includes the projected 5.5 per cent GDP growth, 12 per cent inflation, Rs1,250 billion revenue and per capita income of 1,085 dollars, reveals the Economic Survey for 2008-09 released here by Adviser to Prime Minister on Finance Shaukat Tarin.
The survey states that Pakistan’s GDP growth has been estimated at 2 per cent for the current fiscal as against the original 5.5 per cent target, which was then revised to 3.5 per cent and further clipped to 2.5 per cent as agreed with the IMF. Likewise, the inflation target was fixed at 12 per cent by the government in the budget for the current fiscal, which in reality stood at 22.3 per cent in the first 10 months of 2008-09. “Per capita income in dollar terms rose from the finalised figure of $1,042 last year to $1,046 in 2008-09, showing a marginal increase of 0.3 per cent.” However, in last year’s Economic Survey the target of per capita income was $1,085, which has come down to $1,042.
The revenue target was fixed in the budget at Rs1,250 billion and was irrationally revised upward by the government to Rs1,360 billion, then revised downwards to Rs1,300 billion and yet again reduced to Rs1,180 billion, which also seems impossible to achieve.
However, Adviser to Prime Minister on Finance Shaukat Tarin said during a press conference here on Thursday that the country’s real GDP grew by 2 per cent in 2008-09 against a target of 4.1 per cent.
He said that the 2 per cent economic growth was a result of four shocks, which include macro-economic imbalances, external trade shocks, the global economic crisis and domestic security issues. He mentioned that when the present government took charge, Pakistan’s balance of payments, current account deficit and trade deficit were in the danger zone, but have now improved after joining the IMF programme. He said that the government had consolidated the economy in the current fiscal and was now ready for a growth-oriented budget to be announced on June 13.
He was also asked why the government has not included the 17.2 per cent poverty figure of 2007-08 worked out by the Centre for the Poverty Reduction and Social Policy Development (CPRSPD) and validated by the World Bank. In response, Tarin said that while the WB has validated the 17.2 per cent poverty figure there are indications that in the last quarter of 2007-08, poverty surged and we have initiated the rapid survey to this effect which would come up with a final poverty figure after a three-month period.
However, he said that estimates are that the poverty figure would stand at over 30 per cent during the last fiscal year. He also argued that people are committing suicide and selling their kids because of poverty, so obviously the poverty figure of 17.2 per cent needed to be closer to reality.
To a question he said that the FBR needs to be reformed in such a way that maximum revenue could be collected in the next fiscal and to this effect structural reforms are being implemented and the World Bank’s team is already in town for talks on this very important issue. He said that the government would not forget the fault lines and put its house in order to increase the revenues of the country.
On the issues of change in methodology in the construction sector and drastic cut in last year’s growth from 5.8 per cent to 4 per cent which was done apparently to bring the reasonable growth of 2 per cent close to the target agreed with the IMF, he said this government is crystal clear in its facts about growth and does not believe in the manipulation of figures. However, he said that Pakistan has asked the World Bank and IFCs to come forward and help the government to make the Federal Bureau of Statistics independent which will report not to the Ministry of Finance, but to the National Assembly.
He said that the country’s debt has increased to over $51 billion by the end of this fiscal and total public debt has increased by Rs1.367 trillion in the first 9 months of 2008-09 to Rs7.3 trillion, up by 23.2 per cent in nominal terms.
The increase in total public debt is shared between rupee and foreign currency in a ratio of 40:60. The rise in debt is mainly because of depreciation in the Pak rupee. The total domestic debt is positive at 3.7 trillion at end-March, 2009 which implies a net addition of Rs484 billion in the nine months of the current fiscal.
Mentioning taxation, he said: “I will not tax the people who are already paying, rather I would tax those who are not in the tax net.” He said that the government would levy taxes on real estate and the services sector. However, two other sectors which include the stock exchanges and the agriculture sector would be included in the tax net the next time. To a question as to why the economic mangers have failed to bring the agriculture sector into the tax net, which grew by 4.7 per cent, he said he is ready to tax this sector, but he will be subjected to martyrdom on the next day. In the last 62 years, no one had dared to impose taxes on the agriculture sector because of the the strong lobbies in the country. However, he assured that in the years to come this sector will be brought under the tax net.
The government would come up with a major allocation for IDPs and will not bank on foreign aid. However, he expects that Pakistan will get over $ 2billion from the Friends of Democratic Pakistan (FODP) in the next fiscal and $550 million for IDPs. He explained that his government remains stuck to the fiscal deficit of 3.4 per cent, but this has been relaxed to 4.6 percent because of the $2 billion inflows from the FODP, which will be spent on social sector. The 6.6 per cent fiscal deficit has been further increased to 4.9 per cent keeping in view the expected inflows for the IDPs. He said that budget deficit financing would no more be a issue as the country would be getting more grants from the FODP and 100% grants for IDPs. He also dispelled the impression that the fiscal deficit’s increase to 4.9 per cent would increase inflation, saying that grants would deflect inflationary pressure.
To a question Tarin said that in case the inflows of $5.28 billion pledged by the FODP get delayed, then Pakistan will move the IMF to fill the gap and whenever the FODP inflows come in, then the same amount would be given back to the IMF. He said that Pakistan has asked the IMF for an additional facility of $ 4 billion for this purpose. He said that $ 4 billion will be part of the stand-by arrangement and it will not be treated as a loan.
The manufacturing sector has contracted by 3.3 per cent in 2008-09 as compared to expansion of 4.8 percent last year. Large-scale manufacturing showed a contraction of 7.7 per cent as against an expansion of 4.0 per cent in the last year and 5.5 per cent target for the year.
The services sector grew by 3.6 per cent as against the target of 6.1 per cent and last year’s actual growth of 6.6 per cent. The finance and insurance sector witnessed a slowdown to 12.9 per cent in 2007-08 but registered negative growth of 1.2 per cent in 2008-09. The Transport, Storage and Communication sub-sector depicted a sharp deceleration in growth to 2.9 percent in 2008-09 as compared to 5.7 per cent of last year. Real private consumption rising by 5.2 per cent as against negative growth of 1.3 percent attained last year. However, gross fixed capital formation could not maintain its strong growth momentum and real fixed investment growth contracted by 6.9 percent as against the expansion of 3.8 percent in the last fiscal year.
However, the survey says that the agriculture sector has shown a stellar growth of 4.7 percent as compared to 1.1 per cent witnessed last year and the target of 3.5 per cent for the year. Major crops accounting for 33.4 percent of agricultural value added registered an impressive growth of 7.7 per cent as against a negative growth of 6.4 per cent last year and a target of 4.5 per cent. The livestock sector grew by 3.7 per cent in 2008-09 as against 4.2 per cent last year. The overall FBR tax collection remained less than satisfactory and actually witnessed deceleration in real term. Resultantly, the FBR tax collection to GDP ratio is likely to deteriorate to around 9 per cent of GDP as against the target of bringing it in the vicinity of 10 per cent of GDP. Tax revenue collected by the FBR amounted to Rs.898.6 billion during the first ten months (July-April) of the current fiscal year, which is 17.7 per cent higher than the net collection of Rs.763.6 billion in the corresponding period of last year. The net direct tax collection was estimated at Rs332.5 billion against the target of Rs496 billion which implies a growth of 16.9 percent during Jul-April 2008-09. Indirect taxes grew by 18.2 per cent during Jul-April 2008-09.
Source: The News