Economic Survey 2006-07: seven percent growth spurred by agriculture, LSM and service

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Economic Survey 2006-07: seven percent growth spurred by agriculture, LSM and services sectors

ISLAMABAD (June 09 2007): Pakistan's economy continues to gain traction as it experiences the longest spell of its strongest growth in years. The outcomes of the outgoing fiscal year indicate that Pakistan's upbeat economic momentum remains on track.

Economic growth accelerated to 7.0 percent in 2006-07 on the back of robust growth in agriculture, manufacturing and services. Economic growth has been notably stable and resilient.

With economic growth at 7.0 percent in 2006-07, Pakistan's real GDP grew at an average rate of 7.0 percent per annum during the past five years (2003-07), and over 7.5 percent in four years running (2004-07).

Compared with other emerging economies in Asia, this put Pakistan as one of the fastest growing economies in the region, along with China, India and Vietnam The good performance resulted from a combination of generally sound economic policies and on-going structural reforms.

Based on the performance of half a decade of strong, stable, resilient and broad-based economic growth, it appeared that Pakistan's economy would continue to be a high-mean, low-variance economy over the medium term.

This year's economic growth was mainly driven by strong domestic demand, with investment taking lead over consumption for the first time in last three years. This year's economic growth benefited from higher consumption and investment demand owing to a growing middle class and favourable demographics. Increased contribution of investment to growth was a healthy development as it engendered employment growth, which supported consumption demand and together they played an important role in sustaining strong growth momentum in the medium term.

MAJOR ACHIEVEMENTS IN FISCAL YEAR 2006-07 THE MOST IMPORTANT ACHIEVEMENTS OF THIS YEAR INCLUDED: A strong economic growth of 7.0 percent. The economy grew at an average rate of 7.5 percent per annum during last four years (2004-07). It grew at an average rate 7 percent per annum during the last 5 years (2003-07).

The real per capita GDP grew by 5.2 percent and maintained an average growth of 5.5 percent per annum over last four years;

Per capita income in current dollar-term was up by 11.0 percent, to $925 from $833 of last year. A strong recovery in overall agricultural growth at 5.0 percent and major crops at 7.6 percent.

Highest production of wheat (23.52 million tons) in the country's history. An impressive 22.6 percent increase in sugarcane production (54.7 million tons--second highest production level in the history.

Large-scale manufacturing continued to grow robustly at 8.8 percent, albeit at a somewhat less torrid pace than last year. The overall services sector continued to maintain solid pace of expansion at 8.0 percent.

A sharp pickup in overall investment, reaching a new height of 23 percent of GDP and, most notably, private investment remained buoyant owing to the persistence of strong consumer demand. Despite monetary policy tightening the credit to private sector continued to grow strongly (12.2 percent) on the back of improving investment climate.

On the fiscal side, the overall budget deficit target (4.2 percent of GDP) and revenue collection target of the Central Board of Revenue (CBR) were achieved. Across all measures of vulnerability to external shocks, Pakistan's debt profile improved significantly over the past year.

Public debt declined from 56.9 percent to 53.4 percent of GDP and external debt and liabilities declined from 29.4 percent to 27.1 percent. Workers' remittances totalled $4.5 billion in the first ten months (July-April) of the fiscal year as against $3.6 billion in the same period of last year, depicting an increase of 22 6 percent If this trends is maintained, workers' remittances are likely to touch $5.5 billion for the year--the highest so far in the country's history:

Highest foreign investment flows at around $6 billion in ten months (July-April), and the year is expected to end with $6.5 billion. Exchange rate continued to remain stable despite widening of trade and current account deficits, clearly indicating strong inflows of external resources.

The successful launch of a new $75.0 million 10-year sovereign bond in international debt capital market with seven times over-subscription has been the defining moment in Pakistan's history as it reflected a strong vote of confidence by global investors on Pakistan's current economic prospects and future economic outlook.

SECTOR WISE PERFORMANCE GROWTH AND INVESTMENT: Real GDP growth accelerated to 7.0 percent in 2006-07 as against the revised estimates of 6.6 percent of last year and the 7.0 percent target for the year. The final estimate for 2004-05 had also been revised upward to 9.0 percent as against the revised estimate of 8.6 percent for the year. Thus, over the last four years the real GDP grew at an average rate of 7.5 percent per annum.

AGRICULTURE: Agriculture is still the single largest sector of the national economy It made a modest recovery this year. Overall agriculture grew by 5.0 percent in 2006-07 from 1.6 percent of last year. Within agriculture, the major crops witnessed strong recovery by growing at 7.6 percent against a negative growth of 4.1 percent of last year.

Wheat production was up by 10.5 percent to 23.5 million tons--highest wheat production recorded in the country's history. Sugarcane production, likewise, improved by 22.6 percent to 54.8 million tons--second highest size of the crop in the country's history.

Cotton production at 13.0 million bales remained at last year's level. Gram pulse, the other major crop, exhibited an impressive growth of 75.4 percent in 2006-07 to 0.842 million tons compared with 0.480 million tons of last year.

Livestock, with almost 50 percent contribution to agriculture, performed reasonably well at 4.3 percent this year as against a strong growth of 7.5 percent of last year.

MANUFACTURING: Manufacturing is the second largest sector of the economy, accounting for 19.1 percent of GDP. Overall manufacturing grew by 8.4 percent this year against 10 percent of last year. Large-scale manufacturing (LSM), accounting for nearly 70 percent of overall manufacturing, grew by 8.8 percent against the target of 12.5 percent and last year's achievement of 10.7 percent.

CONSTRUCTION: Construction continued its strong showing, partly helped by activity in private housing market, spending on physical infrastructure, and reconstruction activities in earthquake affected areas. The construction sector is estimated to have grown by 17.2 percent in 2006-07 as against 5.7 percent of last year.

SERVICES SECTOR: The services sector continued to perform strongly for third year in a row and grew by 8.0 percent in 2006-07 as against 9.6 percent of last year. Services sector grew at an average rate of 8.7 percent per annum during the last three years.

PER CAPITA INCOME: Per capita income is regarded as one of the key indicators of economic wellbeing of any country. Per capita income, defined as GNP at market price in dollar terms divided by the country's population, grew by 11 percent this year to US $925, up from US $833 of last year. The per capita income in dollar terms grew at an average rate of 13 percent per annum during last four years, rising from $586 in 2002-03 to $925 in 2006-07.

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June 09, 2007 Saturday Jamadi-ul-Awwal 23, 1428

Executive Summary of Economic Survey 2006-07

ISLAMABAD, June 8: The government on Friday issued the Economic Survey 2006-07. Following is the text of the Executive Summary of the survey:

EXECUTIVE SUMMARY

01. GROWTH AND INVESTMENT

Pakistan’s economy continues to maintain its strong growth momentum for the fifth year in a row in the fiscal year 2006-07. With economic growth at 7.0pc in the current fiscal year, Pakistan’s economy has grown at an average rate of almost 7.0pc per annum during the last five years. This brisk pace of expansion on sustained basis has enabled Pakistan to position itself as one of the fastest growing economies of the Asian region. The growth that the economy has sustained for the last five years is underpinned by dynamism in industry, agriculture and services, and the emergence of a new investment cycle supported by strong growth in domestic demand. Real GDP grew strongly at 7.0pc in 2006-07 as against the revised estimates of 6.6pc for last year and 7.0pc growth target for the year.

Growth of value addition in Commodity Producing Sector (CPS) is estimated to increase by 6.0pc in 2006- 07 as against 3.4pc in 2005-06. Within the CPS, agriculture and manufacturing grew by 5.0pc and 8.4pc, respectively. Large-scale manufacturing registered a growth of 8.8pc in 2006-07 against the target of 12.5.0pc and last year’s achievement of 10.7pc. As a result of structural transformation, the share of agriculture in GDP has declined by 3.2 percentage points in the last 6 years alone and the share of the manufacturing sector has increased by 3.1 percentage points in the same period.

The performance of all the sub-sector of agricultural remained robust with the exception of minor crops and fishing. Major crops witnessed an impressive growth of 7.6pc as against a negative growth of 4.1pc last year. Livestock, a major component of agriculture, exhibited signs of moderation from its buoyant growth of 7.5pc last year to 4.3pc in 2006-07.

The services sector grew by 8.5pc in 2004-05, by 9.6pc in 2005-06 and by 8.0pc in 2006-07. Finance and insurance sector spearheaded the growth in the services sector and registered stellar growth of 18.2pc during the current fiscal year 2006-07 which is slightly lower than 33.0pc of last year. Value added in the wholesale and retail trade sector increased by 7.1pc in 2006-07 compared to 8.6pc growth in 2005-06.

Value added in the transport, storage and communications sector grew by 5.7pc from the previous year compared to 6.9pc growth in 2005-06. Public administration and defence posted a growth of 7.0pc while ownership of dwellings grew by 3.5pc and social services sector improved its growth performance to 8.5pc from 6.3pc last year.

Pakistan’s per capita real GDP has risen at a faster pace during the last four years (5.5pc per annum on average in rupee terms) leading to a rise in average income of the people. Such increases in real per capita income have led to a sharp increase in consumer spending during the last three years. As opposed to an average annual increase of 1.4pc during 2000-2003, real private consumption expenditure grew by 12.1pc in 2004-05 but declined in the subsequent two years to 3.3pc in 2005-06 and 4.1pc in 2006-07. The per capita income in dollar term has grown at an average rate of 13.0pc per annum during the last five years rising from $ 586 in 2002-03 to $ 833 in 2005-06 and further to $ 925 in 2006-07. The main factor responsible for the sharp rise in per capita income include acceleration in real GDP growth, stable exchange rate and four fold increase in the inflows of workers’ remittances.

The commodity producing sectors (agriculture and industry) has contributed 30.2pc or 2.9 percentage points to this year’s growth while the remaining 59.8pc or 4.2pc point’s contribution came from services sector. Within the CPS, agriculture contributed 1.1 percentage points or 15.1pc to overall growth while industry contributed 1.8 percentage points or 22.7pc. The contribution of wholesale and retail trade has increased to19.4pc or 1.4 percentage points to GDP growth in 2006-07. Finance and insurance has also contributed 13pc or 0.9 percentage points to this year’s growth. If we analyze the contributions from aggregate demand side for 2006-07, it emerged that consumption accounted for 49.8pc or 3.2 percentage points to economic growth and while investment accounted for 52.7pc or 3.4 percentage points to growth.

The investment rate is on the rise since 2004-05, reaching as high as 23pc of GDP in 2006-07. This is the highest investment rate ever in recent economic history. This year’s economic growth is largely investment-driven but ably supported which provides source of optimism that a growth of 6–8pc in the next 5 years is quite achievable. National savings are financing a large part of this investment boom. The national savings rate is now at 18.0pc of GDP.

Total investment has reached record level of 23.0pc of GDP in the current fiscal year (2006-07) as against 21.7pc of GDP last year. Fixed investment has increased to 21.4pc of GDP from 20.1pc last year. Total investment has increased from 16.9pc of GDP in 2002-03 to 23.0pc of GDP in 2006-07— showing an increase of 6.0pc of GDP in five years. Fixed investment grew, on average, by 17.3pc in real terms and 30.3pc in nominal terms per annum during the last three years (2004-07). Private investment grew by 18.7pc per annum in real terms and 32.0pc per annum in nominal terms during the same period. The composition of investment between private and public sector has changed considerably during the last three years. The share of private sector investment in domestic fixed investment has increased from less than two-third (64.2pc) to more than three-fourth (76.0pc) in the last seven years clearly reflecting the growing confidence of private sector in the current and future prospects of the economy.

Private sector investment grew by 20.4pc this year as against 37.5pc increase in last year in nominal terms. Public sector investment has also increased by 25.7pc per annum during the last three years and 25.7pc during the current fiscal year in nominal terms. Major nominal growth in private sector investment is witnessed in manufacturing (27.0pc), mining & quarrying (93.6pc), construction (10.7pc), transport and communication (20.8pc), and wholesale and retail trade (25.4pc). National Savings at 18.0pc of GDP has financed 84pc of fixed investment in 2006-07 as against 85.5pc last year. National savings aspc of GDP stood at 18.0pc in 2006-07 fractionally higher than last year’s level of 17.2pc. Domestic savings has risen from 15.3pc of GDP to 16.1pc of GDP.

The overall foreign investment during the first ten months (July-April) of the current fiscal year has touched $ 6 billion — highest ever in the country’s history. The overall foreign investment stood at $5979.2 million during the first ten months (July-April) of the current fiscal year as against $4048.9 million in the same period last year – an increase of 47.7pc. Public foreign investment depicted modest 2.5pc growth in Jul-April 2006-07 by moving to $671.4 million as against $655 million in the comparable period of last year. It is the private sector which took the major task of providing impetus to foreign investment. During July-April 2006-07, total foreign private investment reached $5307.8 million as against $3393.9 million in the comparable period of last year, thereby, depicting 56.4pc increase. Total foreign direct investment has reached $4160.2 million as against $3038.2 million in the comparable period of last year, thereby, depicting 36.9pc increase Almost 78pc of FDI has come from five countries, namely, the UAE, US, China, UK and Netherlands. Netherlands with 18.1pc ($753.4 million) has topped the list of foreign investors followed by the UK (17.4pc or $724.4 million), China (17.0pc or $708.9 million), US (16.3pc or $676.7 million), and UAE (8.8pc or $364.2 million). If we look at sectoral break-up, the communication sector (including Telecom) spearheaded the FDI inflows by accounting for 34.2pc stake during July-April 2006-07 followed by financial business (20.9pc), energy including oil & gas and power (14.1pc), and food, beverages and tobacco (11.8pc). These four groups accounted for almost 80pc of FDI inflows in the country.

02. AGRICULTURE

Agriculture continues to be the single largest sector, a dominant driving force for growth and the main source of livelihood for 66pc of the country’s population. It accounts for 20.9pc of the GDP and employs 43.4pc of the total work force. As such agriculture is at the centre of the national economic policies and has been designated by the Government as the engine of national economic growth and poverty reduction. Agriculture contributes to growth as a supplier of raw materials to industry as well as a market for industrial products and also contributes substantially to Pakistan’s exports earnings. Thus any improvements in agriculture will not only help country’s economic growth to rise at a faster rate but will also benefit a large segment of the country’s population.

The agriculture growth has experienced mixed trends over the last six year. The country witnessed unprecedented drought during the first two years of the decade i.e. (2000-01 and 2001-02) which resulted in contraction of agricultural value added. Hence agriculture registered negative growth in these two years. In the following years (2002-03 to 2004-05), relatively better availability of irrigation water had a positive impact on overall agricultural growth and this sector exhibited modest to strong recovery. The performance of agriculture remained weak during 2005-06 because its crops sector particularly major crops could not perform up to the expectations. Growth in the agriculture sector registered a sharp recovery in 2006-07 and grew by 5.0pc as against the preceding year’s growth of 1.6pc. Major crops posted strong recovery from negative 4.1pc last year to positive 7.6pc, mainly due to higher production of wheat and sugarcane. Wheat production of 23.5 million tons is highest ever in the country’s history, registered an increase of 10.5pc over last year. Sugarcane production likewise improved by 22.6pc over last year to 54.8 million tons, both being record high production. Cotton production at 13 million bales remained mostly unchanged in comparison to 13.02 million bales of last year. Rice production at 5.4 million tons was marginally less than 5.5 million tons produced last year. Despite the lower yield, higher demand abroad for Pakistan Basmati rice and high international prices are expected to surpass the last year’s export earning from Basmati Rice. Amongst the other major crops, gram crop, exhibited an impressive growth of 75.4pc in 2006-07 due to the increase in intervention price of the crop and good rains in “Thal” area where the gram crop is mainly concentrated. Minor crops registered a weak growth of 1.1pc while it was 0.4pc last year. However, amongst the minor crops, production of potato increased by 67.2pc, mung and masoor pulses improved by 21.5pc and 17.9pc respectively. Livestock registered a strong growth of 4.30pc over the last year’s impressive growth of 7.5pc due to increase in the livestock and poultry products. Fishery performed positively at 4.2pc though the previous year’s growth stood at 20.5pc. Forestry has decreased by 3.8pc in 2006-07 while it had decreased by 43.7pc last year. Pakistan’s agricultural output is closely linked to the supply of irrigation water. Against the normal surface water availability at canal heads of 103.5 million-acre feet (MAF), the overall (both for Kharif and Rabi) water availability has been less in the range of 5.9pc (2003-04) to 29.4pc (2001-02). However, it remained less by 2.6pc in 2005-06 against the normal availability. Relatively speaking, Rabi season faced more shortage of water than Kharif during these periods. During the current fiscal year (2006-07), the availability of water for Kharif 2006 (for the crops such as rice, sugarcane and cotton) has been 6.0pc less than the normal supplies and 10.8pc less than last year’s Kharif. The water availability during Rabi season (for major crop such as wheat), as on end- March 2007 was estimated at 31.2 MAF, which was 14.3pc less than the normal availability, and 3.7pc more than last year’s Rabi. Sufficient water supplies coupled with timely winter rains in Rabi season had a good impact on Rabi crops particularly on gram, masoor and wheat as production of these crops increased by 75.4, 17.9 and 10.5pc, respectively.

Amongst major crops, cotton production estimated at 13.0 million bales for 2006-07 remained mostly same at the last year’s production of 13.02 million bales. Wheat production is estimated at 23.5 million tons in 2006-07, as against 21.3 million tons last year, showing an increase of 10.5pc. Rice production has, however, decreased by –2.0pc in 2006-07 from 5.547 million tons last year to 5.438 million tons in 2006-07. Sugarcane production increased from 44.666 million tons in 2005-06 to 54.752 million tons in 2006-07, showing an increase of 22.6pc. As regards the minor crops, the production of potatoes, mung and masoor increased by 67.2pc, 21.5pc and 17.9pc, respectively. The production of chillies, onion and mash decreased by 49.6pc, 14.3pc and 3.6pc, respectively. Lesser production over last year is due to shortfall in area. Agriculture credit disbursement of Rs 104.844 billion during July-March, 2006-07 is higher by 15pc, as compared to Rs 91.161 billion over the corresponding period last year. The fertilizer off-take stood at 2825 thousand nutrient tons in July-March 2006-07 or lower by 5.6pc, as compared to 2991 thousand nutrient tons for the corresponding period last year. The offtake pattern of nutrients has changed in the country because of subsidy factor on phosphatic and potassic fertilizers. Nitrogen offtake has decreased by 12.0pc while that of phosphate and potash increased by 14.2 and 63.6pc, respectively during July-March 2006-07. However, the share of phosphate and potash is low as compared to nitrogen in total offtake, so the overall offtake reduced. Moreover, erratic rainfall pattern in the Kharif 2006 also negatively affected the offtake.

According to the Livestock Census 2006, the share of livestock in agriculture growth has jumped from 25.3pc in 1996 to 49.6pc in 2006. The higher growth in the livestock sector was mainly attributed to growth not only in the headcount of livestock, which is commercially important but also in the milk production. The population of total animals registered a significant increase of 30pc in 2006 when compared with 1996. Overall, the milk production increased by 35.6pc in 2006 over 1996.

Likewise, the total number of animals slaughtered registered 36.7pc increase in 2006 over 1996.

03. MANUFACTURING AND MINING

The overall manufacturing sector continued on its strong positive trend during the current fiscal year. Overall manufacturing recorded an impressive and broad based growth of 8.45pc, against last year’s growth of 9.9pc. Large-scale manufacturing, accounting for 69.5pc of overall manufacturing registered an impressive growth of 8.75pc in the current fiscal year 2006-07 against last year’s achievement of 10.68pc. There has been a slight decline in growth in the manufacturing sector due to multiple reasons like reduced production of cotton crop, sugar shortage, steel and iron problems and the last but not the least global oil prices. All of these reasons contributed to reduced growth in 2006-07 but high levels of liquidity in the banking system, an investment friendly interest rate environment, a stable exchange rate, low inflation, comfortable foreign exchange reserves, stronger domestic demand for consumer durables and high business confidence among other things will again boost the manufacturing sector growth rate up to a reasonable level.

The main contributors to this impressive growth of 8.75pc in July-April 2006-07 over last year are cotton cloth (7.0pc) and cotton yarn (11.9pc) in the textile group; cooking oil (6.8pc), sugar (19.6pc) and cigarettes (4.14pc) in the food, beverages and tobacco groups; cement (21.11pc) in the non-metallic mineral products group and Jeeps & Car (3.0pc), LCV’s (17.04pc), motorcycles/scooters (12.30pc) and tractors (11.40pc) in the automobile group. The individual items exhibiting negative growth include; both nitrogenous and phosphatic fertilizers (0.08pc and 3.10pc), petroleum products (5.59pc) and galenicals (24.49pc).

The Government is fully committed to making the mineral sector in Pakistan one of the most profitable for the country. During the current fiscal year the mining and quarrying sector has registered a growth rate of 5.6pc as against 4.58pc of last year. This increased growth rate was propelled by strong positive growths recorded in magnetite, dolomite, limestone and chromites.

During the period July 2006 to February 2007, the privatization commission completed five transactions that fetched an amount of Rs. 67.664 billion. OGDCL’s 10pc listing and domestic offering was over subscribed yielding a total of $ 811 million, which reflected the confidence of investors in the policies of present government. The privatization transactions of Pakistan State Oil (PSO), Roosevelt Hotel, New York, Services International Hotel, Lahore, National Investment Trust Limited (NITL), Genco-1 Jamshoro, Hazara Phosphate Fertilizers Limited are at various stages of processing and are likely to be brought to the bidding soon.

Given the significance of the SME sector, recent years have witnessed increasing government/ private sector focus. Studies have been undertaken to identify the constraints the SMEs face, an SMEs policy has been announced, commercial banks are now enhancing their to lending to SMEs, some universities are offering programs in Entrepreneurship and SME Management . In its endeavours, Pakistan like some of the other developing countries has received support from the Asian Development Bank.

Non-availability of financing has been recognized as a major impediment to SME development. To meet the financing needs of the SME sector, the SME Bank was formed by converting the Regional Development Finance Corporation in 2002, with loans beings extended for working capital and medium to long term financing, programs lending and leasing through its subsidiary, SME leasing. The SME Bank has lent to areas like CNG station, health development, surgical instrument, fan manufacturers, power looms, carpet manufacturer, gems & jewellery etc. Small & Medium Enterprise Development Authority (SMEDA) is another institution dedicated solely to the promotion of SMEs in the country. During FY07 SMEDA has started establishing on ground demonstration projects and Common Facility Centres to enable the private sector catch up with fast changing global trends in technology and management processes with enhanced productivity and quality standards. These include projects in sports, agro based industry, leather and light engineering sectors.

These projects are spread all over the country.

04. POVERTY AND INCOME DISTRIBUTION

As Pakistan’s economy entered the fourth year (FY 2006-07) of above 7.0pc growth, its poverty headcount had fallen from one-third to less than one-fourth of the population. The confluence of growth accelerating government policies, nature’s blessings and annual growth of 21pc in pro-poor expenditures during the period contributed to approximately 13 million people moving out of poverty. In the immediate to short-run the challenge is to maintain the hard won improvement in poverty levels and even improve upon it through sustained growth (a necessary condition) in the range of 6-8pc per annum. However growth alone does not suffice to reduce poverty levels. It has to be reinforced by job creation. Since FY 02, the economy created 10.62 million jobs, thereby reducing the open unemployment rate to 6.2pc by FY 05-06. Foreign inflows in the form of remittances also have salutary impact on poverty. Development expenditure as a ratio of GDP, increase in human capital base, and openness of the economy are some of the other important factors that reduce the absolute poverty levels in Pakistan. On the debit side, food inflation increases poverty levels. The economy has witnessed a gradual increase in all the former set of determinants, while food inflation remained benign till 2004-05.

An appreciable decline in poverty rates has occurred between 2000-01 and 2004-05. At the national level, headcount decreased from 34.46pc in 2000-01 to 23.94pc in 2004-05, depicting a substantial reduction of 10.52 percentage points over this period. In absolute numbers the count of poor persons has fallen from 49.23 million in 2001 to 36.45 million in 2004-05. The absolute fall in poverty headcount in rural areas from 39.3pc in 2001 to 28.1pc in 2005 was much higher than in urban areas. However inpc terms, urban poverty fell by 34 and rural poverty by 28pc during the period.

The percetnage of population (1.0pc of total population) classified as “extremely poor” remained unchanged between the two periods, the proportion of “ultra poor” and “poor” have declined appreciably during the same period. At the higher end, thepc of “quasi non-poor” and “nonpoor” has increased notably.

Pakistan’s poverty reduction strategy has yielded handsome result in the shape of sharp reduction in poverty. Although, poverty has declined but the fact remains that 23.9pc people of Pakistan still live below the poverty line. Further reduction in poverty is a major challenge for the government. A clear lesson from the past five years of Pakistan and from other countries’ experience is that sustained growth on a consistent basis is needed to reduce poverty. Macroeconomic stability is, of course, a prerequisite for the sustained economic growth that brings the poverty reduction and rising living standards that we all want to see. But macroeconomic stability is not sufficient. Rather, it is the foundation on which to build a thriving economy. Successfully targeted social programs, fair and broad based fiscal regimes, labour markets that promote job creation, and high quality education opportunities for the neediest, are also the key to permanent and sustained reduction in poverty.

05. FISCAL DEVELOPMENT

A sound fiscal position is an essential pre-requisite for achieving macroeconomic stability, which is increasingly recognized as a critical ingredient for promoting strong and sustained economic growth and lasting poverty reduction. Considerable efforts have been made over the last seven years to inculcate financial discipline by pursuing a sound fiscal policy. Pakistan has succeeded in reducing fiscal deficit from an average of 7.0pc of the GDP in the 1990s to an average of 3.5pc during the last seven years. The associated public debt accumulation also declined sharply from over 100pc of GDP to 53pc this year. Pakistan’s hard earned macroeconomic stability is therefore, underpinned by fiscal discipline.

The underlying fiscal deficit is targeted at 3.7pc of GDP (excluding earthquake spending) for the current fiscal year (2006-07) which is slightly higher than the deficit level of the previous year (3.4pc of GDP). Higher deficit was targeted to finance higher public sector development program (PSDP), particularly towards financing infrastructure projects. Pakistan needs to strengthen its physical and human infrastructure to sustain growth momentum.

Total revenues are budgeted at Rs. 1163.1 billion in 2006-07 compared to Rs. 1087.0 billion in 2005-06, showing an increase of 7.0pc. This was primarily due to a rise of 15.5pc in tax revenue on the back of increases in federal tax revenues are projected to rise by 17.5pc. Provincial tax revenue is projected to decline by 12.6pc. Non-tax revenue are targeted to decline by 13.3pc by moving to Rs.277.3 billion in 2006-07 as against Rs.320.0 billion last year.

The wide-ranging tax and tariff reforms as well as reforms in tax administration have started paying dividends. During the last seven years tax collection by the Central Board of Revenue (CBR) has increased by 112.8pc. During the current fiscal year (2006-07), CBR has exceeded the revenue target of Rs. 645.2 billion fixed for the first ten months of current fiscal year (July-April) by Rs. 11.3 billion. The net collection stood at Rs. 656.5 billion as against Rs.547.0 billion in the comparable period of last year, thereby showing an increase of 20pc. The direct taxes contributed most of the increase as they have surpassed the target by Rs.52.4 billion and recorded massive growth of 50.9pc. This increase has compensated much of the revenue shortages on account of sales tax and customs duties by Rs. 22.5 billion and Rs. 19.0 billion, respectively owing to slowdown in imports, resulted in negative growth in dutiable imports with adverse implications for import related taxes.

The gross and net collection has increased by 17.9pc and 20.0pc respectively during July-April 2006-07. The overall refund/ rebate payments during first ten months of current fiscal year have been Rs. 73.0 billion relative to Rs. 71.9 billion paid back during the corresponding period of past fiscal year. Among the four federal taxes, the highest growth of 50.9pc has been recorded in the case of direct tax receipts, followed by FED (20.7pc) and sales tax (7.5pc). On the other hand, customs duties have witnessed a negative growth of 2.3pc. The share of direct taxes in total taxes (collected by the CBR) has increased from 18pc to over 38.5pc in July-April 2006-07. The share of indirect taxes declined from 82pc to 61.5pc during the same period. The collection from custom duty used to account for 45pc of total tax collection and 55pc of indirect taxes in 1990-91, its share has now been reduced to 18.6pc and 32.3pc, respectively. The share of sales tax increased at a tremendous pace from 14.4pc to 41pc of total taxes and from 17.6pc to 60.3pc of indirect taxes during the same period.

Total expenditure is targeted at Rs. 1536.6 billion or 17.4pc of GDP for the fiscal year 2006-07. Total expenditure was projected to be 8.6pc higher than last year (2005-06). During the first nine month (July-March) of the current fiscal year total expenditure is estimated at Rs.1168.5 billion or 76pc of the annual target.

Current Expenditure is targeted at Rs. 1126.2 billion for the current fiscal year (2006-07) which means it would remain almost stagnant at the level of 2005-06. During July-March 2006-07, provisional estimates suggest an expenditure of Rs.925.3 billion which is 83.6pc of the target. The higher increase in current expenditures during the last two years is mainly on account of earthquake-related spending amounting to 0.5pc to 0.8pc of GDP. The major components of current expenditure include interest payments and defence spending which also show increases. Interest payments are targeted at Rs. 239.5 billion for the current fiscal year which are slightly lower than Rs. 241.2 billion but during July- March 2006-07, it already exceeded the target. Defence spending for the year is targeted at Rs. 250.2 billion — 3.8pc higher than last year and during July-March 2006-07, the spending has reached Rs.172.8 billion which is 69pc of the full year target.

Development expenditure is targeted at Rs. 435 billion for the year 2006-07 as against revised estimate of Rs.313.7 billion in 2005-06. During the first nine months (July-March) of the current fiscal year 2006-07, development expenditure amounted to Rs.241.8 billion or only 58.3pc of the yearly allocation. This expenditure is likely to pick-up in the last quarter of the year. The size of the federal PSDP was budgeted at Rs.270 billion and provincial PSDP was estimated at Rs.115 billion; totalling Rs.385 billion. An amount of Rs.50 billion was budgeted for earthquake related spending; therefore, the total size of the PSDP was budgeted at Rs.435 billion. However, an operational shortfall of Rs.20 billion in PSDP was anticipated in 2006-07. During the last seven years the development expenditure improved from 2.2pc of GDP in 2000-01 to 4.9pc of GDP in 2006-07.

The overall fiscal deficit is targeted at Rs. 373 billion or 4.2pc of GDP for 2006-07. The Government is well placed to meet this target as fiscal deficit during the first nine months remained at 3.1pc of GDP or 73pc of the yearly target. On the basis of the developments on revenue and expenditure front, the overall fiscal deficit during the first nine months (July-March) of the current fiscal year stood at Rs. 272.8 billion or 3.1pc of GDP. Earthquake accounted for sizeable amount of fiscal deficit and underlying fiscal deficit excluding earthquake expenditure is targeted at 3.7pc of GDP for 2006-07. Revenue balance (revenue minus current expenditure) — a measure of government’s savings or dissavings, was targeted to be in surplus to the extent of 0.6pc of GDP. During the first nine months (July-March) of the current fiscal year, the revenue balance has remained in deficit to the extent of Rs.29.6 billion or 0.3pc of GDP. The primary balance (total revenue minus non-interest total expenditure) remained in surplus for the last seven years. However, primary balance turned negative for the first time in 2005-06.

The public debt- to-GDP ratio, which stood at almost 85pc in end June 2000, declined substantially to 56.9pc by the end of June 2006 — 28.0 percentage points decline in country’s debt burden in 7 years. By end March 2007, public debt further declined to 53.4pc of the GDP for the year. In absolute terms public debt grew by 7.6pc during July-March 2006-07. Public debt was 562.5pc of revenue by the end of the 1990s. Following the debt reduction strategy in which raising revenue was one of the key elements, the public debt burden in relation to total revenue has declined substantially to 401.0pc by end-June 2006 and further to 400pc by end-March 2007.

By end-June 2006 total domestic debt stood at Rs. 2312 billion which was 30pc of GDP. The outstanding stock of domestic debt rose by Rs 211.8 billion and domestic debt stock

http://www.dawn.com/2007/06/09/ebr11.htm

 

[Neo]

June 09, 2007
Food inflation above 10pc: •GDP growth 7pc •Record wheat output •Manufacturing, cotton targets not met

By Khaleeq Kiani

ISLAMABAD, June 8: A record wheat output of 23.5 million tons and a robust agriculture sector enabled the economy to post a growth rate of seven per cent during 2006-07, according to the Economic Survey launched here on Friday.

Shortfalls in manufacturing and cotton output targets, however, took some of the gloss off an otherwise encouraging performance, the survey said.

The Adviser to the Prime Minister on Finance, Dr Salman Shah, dwelt on the salient aspects of the Economic Survey at a press conference.

He said the economy achieved ‘history’s second largest sugarcane production’, ‘history’s biggest investment-to-GDP at 22 per cent’ and ‘history’s biggest foreign investment of six billion dollars’.

The adviser said the international community had expressed confidence in Pakistan’s economy by subscribing over three billion dollars as against $500 million sought at the recent Eurobond floatation.

Dr Salman said that instead of $500 million, the government decided to accept bids for $750 million at an interest rate of 6.875 per cent — only two per cent above the US treasury bonds interest rate.

The real gross domestic product (GDP) growth rate at 7.0 per cent — on budgeted target — shown in the Economic Survey and confirmed by the adviser is slightly lower than 7.02 per cent announced by the Prime Minister last week after a meeting of the National Accounts Committee. It was, however, better than last year’s 6.6 per cent growth rate. It is evident from the survey data that growth was based on domestic consumptions rather than export growth.

The survey conceded that despite impressive gains, there were areas “where results could not be achieved as planned”. Inflation at 7.9 per cent was much higher than 6.5 per cent target because of shortfalls in domestic production of pulses, rice, chillies, onion and tomatoes and fruits that led food inflation above 10 per cent against last year’s 7.0 per cent.

Growing at about 8.0 per cent — much better than target of 7.1 per cent — the services sector contributed almost 60 per cent (4.2 percentage points) to this year’s economic growth and covered up for sluggish industrial performance. It was, however, lower than last year’s impressive 9.6 per cent growth. All the components of services sector registered strong growth except in ownership of dwellings.

Manufacturing, having 19 per cent share in the GDP, grew at 8.4 per cent against 10 per cent last year and budgeted target of 11 per cent. Large-scale manufacturing, accounting for about 70 per cent of overall manufacturing, recorded 8.8 per cent growth rate against the target of 12.5 per cent and last year’s achievement of 10.7 per cent. The survey attributes this shortfall to lower capacity utilization, difficulties in textile sector, stagnant cotton production and lacklustre performance by vegetable ghee/cooking oil and automobile sectors.

On the external front, while import growth slowed to a normal level from 29 per cent average growth in last four years, “export growth witnessed abrupt and sharp deceleration to less than 4.0 per cent” after growing at 16 per cent last year. Therefore, the benefits of normal growth of imports could not be achieved in terms of improving trade and current account deficits. The economic survey also said that consumption inequality has marginally increased during the period 2001-05. Dr Shah said 2006-07 was another year of “strong growth performance” despite shortfalls in manufacturing and major inflationary shocks contributed by international prices on the back of higher use of cooking oil to bio-fuels and domestic supply problems.

The agriculture sector that made a modest recovery from the dismal performance of last year grew by five per cent. Wheat production at 23.5 million tonnes was highest in Pakistan’s history, up by 10.5 per cent besides strong recovery by major crops growing at 7.6 per cent against last year’s negative growth of 4.1 per cent. Cotton production at 13 million bales remained static at previous level.

Livestock that grew by 4.3 per cent was way behind last year’s strong growth of 7.5 per cent. Minor crops grew by only 1.1 per cent this year as against equally poor performance last year.

The survey once again confirmed that services sector growth was mainly boosted by growth in the banking and insurance sector by registering 18.2 per cent through a large gap between higher interest rates and low return on deposits but was lower than last year’s 33 per cent. Value-addition in the wholesale and retail trade sector increased by 7.1 per cent against 8.6 per cent last year. Value-addition in transport, storage and communication sector grew by 5.7 per cent, far less than 6.9 per cent last year.

PER CAPITA REAL GDP: Per capita income in dollar terms registered an increase of 11 per cent, rising from $833 to $925 but was short of $935 target and lower than last year’s 14.1 per cent growth.

FOREIGN DIRECT INVESTMENT: The country attracted $6 billion of FDI against $4 billion during the same period last year, showing an increase of almost 48 per cent. As percentage of GDP, total investment reached 23 per cent this year, increasing from 21.7 per cent last year. Nearly 80 per cent of FDI has come into IT & telecom, banking and financial services, energy sector and food and beverages.

INVESTMENT: Fixed income has increased to 21.4 per cent of GDP from 20.1 per cent last year. Private sector investment grew by 20.4 per cent this year against 37.5 per cent increase in last year in nominal terms.

NATIONAL SAVINGS: National savings, which stood at 18 per cent of GDP against 17.2 per cent last year, have financed 84 per cent of fixed investment as against 85.5 per cent last year.

REMITTANCES: Workers’ remittances totalled $4.5 billion in ten months of the current year as against $3.6 billion in the same period last year, showing an increase of 22.6 per cent.

TRADE DEFICIT: The merchandize trade deficit widened to $11.1 billion in first 10 months of the current year as against $9.5 billion in the same period last year. Exports in 10 months of the year rose by a meagre 3.4 per cent to $13.9 billion while imports grew by 8.9 per cent, rising from $22.9 billion to $25 billion against last year’s increase of 40.4 per cent.

CURRENT ACCOUNT DEFICIT: The current account deficit, excluding official transfers, stood at $6.2 billion (4.3 per cent of GDP) in first 10 months of the year against just $4.6 billion of last year.

PUBLIC DEBT: The public debt to GDP ratio, which was 85 per cent in 1999-2000, declined from 56.9 to 53.4 per cent in 2006-07 — almost 3.5 percentage point reduction in debt burden.

http://www.dawn.com/2007/06/09/top1.htm

 

[Neo]

Saturday, June 09, 2007

Economic survey: Textile exporters need govt’s financial aid

* Country’s textile products are of poor quality
* Labourers are less productive

KARACHI: Pakistan’s textile exports suffer from serious structural problems, which need to be addressed by textile manufacturers with the government’s help through facilitation and temporary financial support, revealed the Economic Survey of Pakistan released on Friday.

It pointed out that country’s textile products are of poor quality, and therefore fetch low international prices. The machines installed in recent years are old relative to Pakistan’s competitors. Therefore, these machines use more power, are less productive and carry higher maintenance cost.

The survey said Pakistan’s labourers are less productive because little or no efforts have been made to impart training or improving their skills. Citing reasons for struggling textile exports in the international market, it stated: “Pakistan’s exporters spend little money on research and development and export houses lack the capacity to meet bulk orders. They are also unable to meet the requirements of consumers in terms of fashion and design.”

It is generally argued that Pakistan’s exporters are uncompetitive in terms of adherence to contracted quality and delivery schedule, whereas their competitors are investing heavily and creating better economies of scale. According to the economic survey, Pakistan’s exports this year have experienced a decline of a $563 million because of a slump in their unit values.

“Although Pakistan’s exports in terms of quantity present a mixed picture, the general decline in their prices in the international market has deprived Pakistan of $563 million,” it said.

Listing various other issues regarding the declining exports, the survey stated that the less than satisfactory export performance of textile manufacturers could be attributed to a variety of factors. Firstly, it appears that Pakistan’s textile exporters were unable to compete with China, India and Bangladesh in the international market. Secondly, the discriminating dumping duty of 5.8 percent on the bed linen export has also affected Pakistan’s competitiveness.

Thirdly, the poor quality of cotton on account of contaminated cotton issue has also adversely affected the exports of the spinning industry. Fourthly, the rise in prima cotton price - a genetically modified version which is imported from the USA and a critical input for producing higher quality bed wear and fabrics - has made it difficult for Pakistani exporters to use it in their products.

Pakistan’s exports are based on a few items namely: cotton, leather, rice, synthetic textiles and sports goods. These five categories of exports account for 77.2 percent of the total exports.

During the first nine months of 2006-07, the cotton manufacturers alone contributed 61.5 percent, followed by leather (4.5 percent), rice (6.6 percent), synthetic textiles (3 percent) and sports goods (1.6 percent). The degree of concentration has changed little from the last fiscal year. Further breakup reveals that almost all export earnings have originated from textile manufacturers.

Though Pakistan trades with a large number of countries, its exports are however highly concentrated in a few countries including the USA, Germany, Japan, the UK, Hong Kong, Dubai and Saudi Arabia, which account for one-half of its exports. The United States is the single largest export market for Pakistan, accounting for 28.4 percent of its exports followed by the UK and Germany. Japan is fast diminishing as an export market for Pakistan as its share in total exports has been on the decline, reaching less than one percent from 5.7 percent a decade back.

Pakistan needs to diversify its exports not only in terms of commodities but also in terms of markets. “Heavy concentration of exports in few commodities and few markets can lead to export instability,” the survey added.

http://www.dailytimes.com.pk/default.asp?page=2007\06\09\story_9-6-2007_pg5_1

 

[Neo]

Election-focused, pro-growth Rs 1.874 trillion budget envisages record Rs 0.52 trillion development spending

ISLAMABAD (June 10 2007): State Minister for Finance Omar Ayub Khan on Saturday presented an election-focused, pro-growth budget of Rs 1.874 trillion, which envisages, among other things, a record development spending of Rs 502 billion and subsidy-based relief for the poor and the low-income groups through massive expansion of utility stores network.

The Utility Stores Corporation (USC) network will be expanded to union councils level for outreaching maximum number of needy people. Essential items would be provided to low-income groups through expanded USC network, and Rs 111 billion have been allocated for subsidies to protect the poor segment of the society.

Government employees will get 15 percent increase in basic salaries with special incentive for BPS 4 of one grade promotion.

Minimum wages limit has been increased from Rs 4000 to Rs 4,600 per month, and EOBI Old Age benefit will be increased from Rs 1300 to Rs 1500 per month. Pensioners will get 15 to 20 percent increase. Those who retired prior to 1975 would get 5 percent more increase in pensions.

The provinces will get 46 percent of resources from divisible pool, against 45.5 percent of 2006-07, and their share will increase, as per agreed National Finance Commission (NFC) award, to 50 percent by 2011. GDP growth rate has been fixed at 7.2 percent for next fiscal year.

The Public Sector Development Programme (PSDP) will be Rs 520 billion and it will cater the needs of a number of key areas. Several steps would be taken to plug trade and current account deficit.

Mega dams and other water-related projects will be completed on top priority basis to overcome power crisis. Neelam-Jehlum will cost Rs 84.5 billion. PSDP will cover 669 new and 1450 on-going development projects, and Rs 35 billion has been earmarked for earthquake areas rehabilitation.

Design for Bhasha and Diamir dams will be completed in 2008. The Central Board of Revenue's (CBR) has been given target of Rs 1.025 trillion, against Rs 835 billion of the outgoing fiscal year. It would include Rs 622 billion direct and Rs 408 billion indirect taxes.

Tariff regime for cars will remain the same, except conversion of capital value tax (CVT) into customs duty and reduction in period of import from 5 years to 3 years.

One percent special surcharge has been imposed on import of all items, except petroleum products, palm oil and agriculture inputs and machinery. PSF imports have been included in DTRE scheme to give relief to the textile sector.

Real Estate Investment Trust (REIT) has been formed with exemption from tax up to 2010. Assets of stocks exchanges, to be transferred to demutualised exchanges, will be given special tax treatment. In order to speed up private investment in Private Equity Fund (PEF) exempted from tax till 2014 has been proposed.

Four percent of GDP will be spent on education. Defence budget has been increased by 9.12 percent by taking its allocations to Rs 275 billion against Rs 252 billion of 2006-07.

Educated youth will get stipend. Special skill programme will be launched under Navtec to impart skill to the youth. Baitul Maal Fund will cover 0.7 million households, according to new budget. Electricity rates for tube-well have been cut by 25 percent. Subsidy on urea has been increased to Rs 470 per bag. The growers will get fertilisers, new seeds and other agricultural inputs at subsidised rates.

Incentives for livestock in taxes. Khushal Pakistan Programme (KPP) will cover more areas for development. Poverty issue will be addressed through more jobs.

http://www.brecorder.com/index.php?id=575765&currPageNo=1&query=&search=&term=&supDate=

 

[Neo]

Rs 113.9 billion earmarked for subsidies

ISLAMABAD (June 10 2007): The government has earmarked Rs 113.9 billion for subsidies and relief to the common man in 2007-08, which is 5.9 percent higher than the revised target of the outgoing fiscal year. Subsidy on fertilisers has been increased to Rs 13.5 billion in 2007-08 from 12.3 billion in 2006-07, and Rs 7.5 billion has been allocated for subsidy on sugar.

According to budget documents, Wapda will get Rs 52.893 billion as subsidy on GST, agriculture tubewell in Balochistan, and Rs 25 billion on account of inter-Disco tariff differential.

Karachi Electric Supply Corporation (KESC) would get Rs 15.796 billion, on account of tariff differential, Rs 3.35 billion as GST subsidy, Rs 133 million differential agriculture tube-wells in Balochistan and Rs 31.7 billion as payable to PSO and PGCL.

The government has not allocated any amount to the Trading Corporation of Pakistan (TCP) for the import of fertilisers and wheat. However, TCP would be given Rs 1.2 billion on account of reimbursement of losses on cotton operations and Rs 9.5 billion for DAP import. Passco would get Rs 610 million for miscellaneous/export of wheat and Rs 30 million on account of paddy operation. The government has also allocated Rs 15 billion to oil refineries, oil marketing companies (OMCs) and others against revised target of Rs 25 billion for the current fiscal year.

FFC Jordan would get Rs 860 million, Pakistan Dairy Development Company (PDDC), Soprest/GIK Rs 80 million, ghee package Rs 1.2 million, sale of wheat in Fata Rs 110 million, Rs 541 million for sale of wheat, salt and sugar in Gilgit agency, sale of pulses at USC Rs 200 million and sale of Atta at USC 400 million.

The budget documents said that currently the government was not imposing petroleum development levy (PDL) on kerosene, diesel and light diesel oil (LDO).

At present, there is subsidy on kerosene, diesel and LDO as the government has capped the sale price of these products at an affordable level. As a result of the rise in the international crude oil prices, the government is paying price differential claims to OMCs and refineries.

In the past, PDL was a major source of revenue. However, it is on decline now and is being used to pay PDC. The allocation to PDC has been increased by 50 percent as compared to the budget estimates of 2006-07.

http://www.brecorder.com/index.php?id=575801&currPageNo=1&query=&search=&term=&supDate=

 

[Neo]

Defence budget up nine percent

ISLAMABAD (June 10 2007): Pakistan has increased defence spending by more than 9 percent to Rs 275 billion for the next fiscal, as compared to Rs 252 billion in the out going financial year. The amount is 3.13 percent of the country's GDP. The defence spending is higher than the spending on education and health.

"Impregnable defence is indispensable for a nation which wants to live with honour and dignity," Minister of State for Finance Omar Ayub Khan said in his budget speech to the National Assembly on Saturday evening. "Pakistan is a nuclear power, if any one looks at us with evil intention, we will respond with full force."

INDIAN DEFENCE SPENDING Pakistan's move comes months after neighbouring India did the same. New Delhi's defence spending for the financial year starting April 2007 went up by around 8 percent.

Though Indian defence budget is more than five times higher than that of Pakistan in size, yet its ratio to GDP (2.1 percent) is much lower. But relations have started improving since they launched a peace process in early 2004.

Despite the thaw in ties, the nuclear-armed South Asian rivals have continued to focus on their military build-up. Omar Ayub said peace could only be achieved by making defences invincible.

CONTROVERSIAL & TRICKY Pakistan high defence spending has always been a source of controversy. Many political parties and rights group have been pressing the respective governments in the past to cut military budget.

The construction of a new army headquarters in the federal capital, Islamabad, is another point military's bitter opponents capitalise on for criticising high defence spending.

Some four years ago, the government decided to pay pensions of retired armed forces personnel from the civilian budget, a tricky move that drew a barrage of criticism.

The planned defence spending is in addition to military aid Pakistan is getting from the United States for its role as a front-line state in the war against terrorism. In the past six years, Pakistan has received an estimated $10 billion of assistance from Washington, much of it in the form of military aid.

http://www.brecorder.com/index.php?id=575793&currPageNo=1&query=&search=&term=&supDate=

 

[Neo]

Rs 1.025 trillion revenue target fixed

ISLAMABAD (June 10 2007): The federal government has fixed Rs 1.025 trillion revenue target for financial year 2007-2008, which is Rs 190 billion higher as compared to the Rs 835 billion of last fiscal. So far, the CBR has collected Rs 719.6 billion in July-May (2006-2007) against Rs 610.6 billion in the corresponding period last fiscal, indicating a growth of 17.9 percent.

Taxation measures on the sales tax and income tax would enable the CBR to meet the target of Rs 1.025 trillion in the fiscal 2007-2008. According to the break-up of target, direct tax receipts have been projected at Rs 408 billion, higher by Rs 88 billion than the target of Rs 320 billion for the on-going fiscal.

The share of indirect taxes has been projected at Rs 622 billion denoting Rs 104 billion raise as compared to the previous year's Rs 518 billion. The government has estimated income tax collection at Rs 388 billion during 2007-2008 against the revised target of Rs 305 billion giving tax managers the task of generating Rs 83 billion to bridge the gap.

Further break-up shows that customs duty was projected at Rs 154 billion, as compared to Rs 134 billion revised estimates for the year 2006-2007. The customs authorities have been assigned to generate Rs 20 billion more in the upcoming fiscal.

Sales tax target has been enhanced to Rs 375 billion, from Rs 311 billion as per revised estimates of 2006-2007. This indicates that the sales tax wing will have to collect Rs 64 billion more in the new fiscal.

The share of the federal excise duty (FED) has been fixed at Rs 91 billion against enhanced target of Rs 72 billion for the outgoing fiscal. The board has to collect Rs 19 billion more in fiscal 2007-2008 from excisable commodities.

Out of total direct taxes target of Rs 408 billion, the target of capital value tax (CVT) has been projected at Rs 6500 million against last year's estimates of Rs 5,000 million. The estimate of worker's welfare tax (WWT) has been projected at Rs 2,800 million against last year's revised projection of Rs 1,500 million.

The target of Worker's Participation Tax (WPT), has been fixed at Rs 7,700 million as compared to the revised target of Rs 6,500 million. The share of foreign travel tax has been projected at Rs 3,250 million.

http://www.brecorder.com/index.php?id=575797&currPageNo=1&query=&search=&term=&supDate=

 

[Neo]

Good budget to please masses: Majyd Aziz

KARACHI: The President of the Karachi Chamber of Commerce and Industry, Majyd Aziz, appreciating the budget in holistic terms, said it is a good budget to please the masses.

“It’s an election year and the government has every right to present such a budget which is aimed at pleasing the masses and it is a good effort. But, he said the Government would need to interfere in the food inflation issue otherwise the impact would automatically sliced off.

Majyd Aziz said that the food inflation has been making the kitchen budget of the people out of balance and pushing the price hike and the on-going trends were not welcoming. He was of the opinion that the government should take more appropriate measures to control the food inflation.

Talking to the Reporters after listening to the budget speech of the State Minister for Finance, Omar Ayub Khan, Majyd Aziz said besides the relief packages for the general masses there other concessions announced for trade and industry which would leave positive impact on the national economy and economic activity in the country.

He said the direction of the policy on which the budget has been based is the continuity of the previous year due to which there was no worry or surprise. However the announcement about the raise in the wages of the skilled and unskilled labour is slightly worrisome because he was not sure how to handle the wages of the skilled labour without impacting upon the cost of production.

He said the incentives to the agriculture sector are also encouraging and in the right direction. However, he said the packaging sector has been declared zero rated but there are chances of misuse of the incentive for which the concerned quarters have to be vigilant.

About the, Rozgar Scheme, he said it should not be confined to National bank only but every bank should have its own scheme as the number of beneficiary which the government has announced some 10,000 was too small and need to be multiplied.

http://www.thenews.com.pk/daily_detail.asp?id=59855

 

[Neo]

Chambers term budget pro-people

ISLAMABAD: Chambers of commerce and industries of the twin cities have termed the federal budget 2007-08 less trader-friendly and more pro-masses.

Most of the demands made by the traders and business community either ignored or not properly considered by the policy makers; however, they would be in better position to comment on the budget after thoroughly reading it, they commented. Dr Hassan Saroosh Akram, President of the Rawalpindi Chamber of Commerce and Industry, said that textile and downstream industries were not offered any relief package to enhance their dwindling exports.

Most of the chambers’ proposals went unheard as slashing corporate tax of 35 percent, 15 percent GST and 3pc on turn over, he said, adding that another proposal of avoiding double taxation was not considered in the budget.

However, some of the measures announced for the federal employees would definitely help in arresting the price hike whereas 48 percent of the budget would be spent on the betterment of masses, Dr Saroosh said. Nasir Khan, President Islamabad Chamber of Commerce and Industries, said that the total outlay of Rs1.59 trillion with budget deficit under five percent would help economic stability of the country. The chamber was also expecting some announcement regarding the construction of mega dams as the construction of mega projects would pace up the industrial activities in the country, he added.

About extending utility store chains, he said that it is better for the urban section of society, but it should be extended to the poor segment of the society, which make up 70 per cent of the population and residing in villages.

http://www.thenews.com.pk/daily_detail.asp?id=59856

 

[Neo]

June 10, 2007

Poll-year bid to pacify electorate: •Rs1.874tr budget •Rs398bn deficit •15pc rise in govt employees’ salary and pension •Minimum wages raised to Rs4,600 •Subsidy on tea, sugar, rice and cooking oil •1pc surcharge on imports

ISLAMABAD, June 9: Flavoured with relief and other populist measures ahead of elections, the government presented a Rs1.874 trillion consolidated federal budget for 2007-08 in the National Assembly on Saturday, envisaging a revenue target of Rs1.025 trillion, defence spending of Rs275 billion and a fiscal deficit of Rs398 billion.

Total subsidies of Rs113.9 billion are, however, just 5.6 per cent or Rs6.3 billion higher than the current year’s Rs107.6 billion. A major chunk of the subsidies — Rs98 billion — is meant for Wapda, KESC, textiles, petroleum companies and refineries.

About Rs23 billion has been kept for the import of fertilisers and to meet official losses in previous wheat and cotton imports and Rs7.5 billion for sugar import in a year of surplus sugarcane production. This leaves only Rs2.45 billion subsidy for commodities to be sold through utility stores including pulses, sugar, and ghee against Rs983 million during the current year.

Perceived to have been prepared keeping in mind the looming elections, the Minister of State for Finance, Omar Ayub Khan, who read out the speech amid opposition protest, described it as a budget of relief, budget of investment, budget of a fast-growing economy and a budget of the people. He said it would reduce the prices of kitchen items, ensure self-sufficiency and welfare of the people. In this context, he announced some populist steps offering benefits to the working class, including a 15 per cent increase in salaries of government employees.

Similarly, new pensioners would get 15 per cent increase in their pensions while a handful of older pensioners who retired before 1980 would get a raise of about 20 per cent.

“This budget addresses the crisis created by the Chief Justice’s suspension and, of course, it is the election year as well. The crucial question is whether it will be a case of too little too late,” said an insider.

The total budgetary outlay of Rs1.874 trillion for the next year is almost 25 per cent higher than the current year’s budgetary estimate of Rs1.5 trillion.

Budget deficit at Rs398 billion is estimated to be about 6.5 per cent higher than the current year’s budget estimate of Rs374 billion.

As ratio of GDP, the budget deficit would fall slightly to 4.0 per cent against 4.2 per cent during the current year. This would be met through external resources of Rs258 billion, about Rs131 billion bank borrowing and remaining through the national savings. Overall size of the economy (GDP) has been estimated at almost Rs10.007 trillion ($166 billion).

The share of current expenditure in total budgetary outlay is 66 per cent as compared to 72.4 per cent in revised estimates for 2006-07. The expenditure on general public services (inclusive of debt servicing, transfer payments and superannuation allowances) is estimated at Rs642 billion which is 60.9 per cent of the current expenditure.

The target for CBR tax revenue at Rs1.025 trillion would be almost 22 per cent higher than this year’s original estimates of Rs841 billion. The defence spending has been estimated at Rs275 billion against Rs250 billion this year, up by about 10 per cent.

One of the most critical features of the budget would be a staggering 54 per cent increase in current expenditure __ projected at Rs1.353 trillion, against Rs880 billion this year.

Of the Rs1.03 trillion total tax revenue, direct taxes are estimated at Rs408.25 billion while indirect taxes have been put at Rs622.3 billion.

The budget has projected to transfer a total of about Rs491 billion to the provinces as their share of net proceeds of the federal divisible pool and grants including subventions.

The public sector development programme (PSDP) has been estimated at Rs520 billion against Rs415 billion of the current year, showing an increase of about 25 per cent.

An amount of Rs275 billion has been allocated for defence expenditure against Rs250.2 billion of the current year, showing an increase of almost 10 per cent. The education sector, including higher education, would get a total of Rs24.5 billion, which is about 22 per cent higher than current year’s Rs20.1 billion.

Mr Ayub said the government wanted to provide benefit to about 87,500 federal employees and hence clerical staff in the grades of 5, 7 and 11 have been upgraded to grades 7, 9 and 14 respectively.

The resource availability has been estimated at Rs1.394 trillion against Rs1.1 trillion in 2006-07. Net revenue receipts have been estimated at Rs902 billion, indicating an increase of 28 percent over the budget estimates of 2006-07.

Likewise, the provincial share in federal revenue receipts is estimated at Rs466 billion which is 23.2 percent higher than the budget estimates of the outgoing year. The capital receipts (net) have been estimated at Rs59 billion against the budget estimates of Rs16 billion for 2006-07. The external receipts are estimated at Rs259 billion, up by eight per cent over the current year.

The minister said the government would build 5,000 housing units in Islamabad for low-paid government employees. Land would be provided by the Capital Development Authority at government rates and the employees would get loan for construction.

The budget also improved minimum wages of unskilled workers from Rs4,000 to Rs4,600, raised EOBI pensions from Rs1300 to Rs1500, all workers made entitled to disability compensation and increased death compensation under workers welfare fund to Rs300,000 against Rs200,000 at present.

Daal Chana, Moong and Mash, being sold at Rs38, Rs56 and Rs72 per kg would be sold through utility stores at Rs29, Rs47 and Rs57 per kg, respectively. Similarly, a per kilo relief of Rs10, Rs5 and Rs5 would also be provided on tea, sugar and rice respectively. The cooking oil would also be sold at Rs67 per kg against market price of Rs80. About 5,000 additional utility outlets would be opened within four months at union council level to increase the outreach.

The budget also offered 25 per cent subsidy on electricity charges on agricultural tube-wells to be equally shared by the federal and provincial governments.

The minister of state for finance also announced construction of Rs84.5 billion Neelum-Jhelum Hydropower project in Azad Kashmir for which Rs5 billion would be provided next year. Likewise, Rs500 million have also been earmarked for Bhasha-Diamer Dam and related upgradation of Karakoram Highway. About Rs29 billion have been allocated for the development of National Trade Corridor to enable the National Highway Authority to start different highway projects costing Rs147 billion.

In tax measures, investment in private equity funds has been tax exempt till 2014 and the capital gains tax on sale of asset share of private companies to private equity and venture capital has been reduced from 35 per cent to 10 per cent.

A new concept of real estate investment trust (REIT) has been introduced for investment in capital markets to enable small investors to reap profits from investment in real estate and the distribution of profit of RIET would be tax exempt up to 90 per cent. Sellers of property will be exempt from tax up to 2010.

The minister said that tax reforms will continue and a zero-rated tariff slab has been proposed to reduce cost of raw material. Similarly, the duty on import of machinery for horticulture, furniture, marble and granite, surgical and medical instruments has been withdrawn. The customs duty on energy-saving devices has been reduced by five per cent to 10 per cent.

Capital value tax on imported vehicles has been withdrawn. However, adjustment in customs duty at the rate of 5 per cent, 10 per cent and 15 per cent for different capacity cars has been introduced while a five per cent levy has been imposed on local vehicles. There will be no customs duty on 800cc cars. Generally the import of cars under various schemes has been discouraged to encourage local industry.

To control trade deficit owing to rising imports, one per cent levy has been imposed on all imports except petroleum products, edible oil, fertilizer, medicines and necessary food items besides already exempted items.

Textile sector has been given some incentives under DTRE scheme for research and development facility. Sales tax reduction has been offered for import of raw material for iron, steel, plastic and paper industries.

http://www.dawn.com/2007/06/10/top1.htm

 

[Neo]

Ten things this budget ignored​

By Sherry Rehman

EVERY year in Islamabad, even the most lacklustre parliament comes alive during the budget session. This time, no one, particularly the treasury benches, seemed to care. Budget 2007-08, like the last five presented by the regime, once again bases its unmet targets on a small elite of Pakistani society.

Even after five years of public fury at high inflation and joblessness, there is clearly no understanding of the social unrest that this kind of model has unleashed in Pakistan. Why? Because this is a supply-side model where growth is based solely on benefits trickling down, and for this model to deliver effectively in a developing country one needs 10-11 per cent growth at a bare minimum.

Yet in Pakistan no European-style social nets or American-type domestic protection for farmers cushion the shocks intrinsic to this local variant.

Growth is always a good objective but it needs to be structurally balanced in emerging markets like Pakistan. Yet, the bottom line today is that macroeconomic fundamentals remain weak because Pakistan’s growth is driven largely by household consumption at 7.8 per cent of GDP. High growth in consumer sectors disguises dangerous red lines in poverty and low manufacturing growth.

The 74 per cent who now live below two dollars a day, as per World Bank statistics, have been largely ignored except in piecemeal pockets of “relief” which represent sops for a tiny fraction, but ignore a sea of the vulnerable and the socially excluded.

To prevent Pakistan from sliding into more chaos, to lower the stresses of an unemployed, under-educated population, where regional and income inequalities spark further political unrest, the regime should have focused on the following 10 items.

One, public money should have been better utilised and targeted at higher social spending. As it stands, the Public Sector Development Programme at Rs520 billion is illusory. Not only does the real PSDP stand at Rs427 billion, when foreign loans are deducted, but 86 per cent will go to on-going projects. This leaves only 14 per cent for urgent social investments.

At the same time, the governance of PSDP is so poor that 100 projects stand cancelled by the Asian Development Bank. Education and health continue to be neglected by the regime and get an embarrassingly low allocation of Rs24 billion and five billion rupees respectively. Spending should have gone up to 4.5 per cent and four per cent GDP respectively. Although this is old news, Bangladesh performs better on education than we do.

Second, the defence budget of Rs275 billion should have undergone parliamentary audit. If just military pensions worth Rs37.7 billion are added on, leaving out other assorted military items hidden in the civilian budget, the final figure is way above Rs312 billion.

Given that defence spending makes up more than half the amount allocated for development expenditure and got a boost of 10 per cent this year, it should have been discussed in the defence committee of parliament, as in India and other democracies. Under the circumstances, where the treasury benches are beholden to a general for their seats in parliament, there is no prospect of public accountability or transparency, let alone asking what happened to the Rs60 billion from the US Pentagon.

Thirdly, the windfalls from September 11, namely $ 35 billion, should have been used more prudently, preferably to fuel infrastructure and retire public debt. Instead, the fiscal space gained from remittance and aid inflows has gone into profligate spending.

Right now the country’s foreign reserves of $13 billion don’t amount to receipts for 18 weeks of imports, which given the current balance of payments, takes us back to the same situation as 2001 where lower forex reserves covered the same few weeks of imports. Current account expenditures account for 66 per cent of the entire budget of Rs1.8 trillion, so growth is more illusory than it seems. There is no explanation for why we still borrow $38 billion from external sources when the regime claims we have broken the begging bowl, affectionately known as the “expanding kashkol” in the National Assembly. Balance of payment deficits have grown from $1.4 billion in 2000 to $6.1 billion.

Four, deficit financing should have been used less and less as an instrument of policy. It fuels inflation and crowds out private investment, while jacking up interest rates and pushing up production costs. Right now, almost half the budget deficit is funded through bank borrowing, which the State Bank has warned against. Nobody from the treasury is willing to answer why the current account deficit is expected to be around five per cent of GDP at $7.1 billion.

Five, the dangerously high trade deficit — a constant peril to the stability of the economy — should have been lowered. Despite a record trade gap of $12 billion, up from $1.7 billion in 2000, increased foreign direct investment and workers’ remittances are expected to bridge the gap. The latter may persist after 9/11, but given the collapse of law and order today, such supply-driven factors cannot plug black holes in the economy.

Instead, a proactive diversification and higher value addition of Pakistan’s export base should have been pushed to maximise receipts. It goes against the elitist grain of this government, but the import of luxury items should have been reduced by taxing high-end consumer durables. This item jacks up the import bill by $2.04 billion out of a large tab of $27 billion. This way consumption would not have outstripped domestic production by such large margins.

Six, immediate relief should have been given to the growing number of Pakistanis living below the poverty line. Yet, out of the Rs113.9 billion allotted to subsidies, only Rs2.45 billion go to stabilise the prices of essential items. Food inflation still teeters between 10 and 14 per cent and represents a real threat to the inelastic incomes of the growing poor. The subsidies on food provide relief only at two rupees per head, while an obscene Rs98 billion funds the inefficiencies of Wapda, KESC and others.

Fiscal policy should also have been used to stem tragic levels of unprecedented financial destitution due to which more than one suicide takes place per day. At present, 60 per cent of the regime’s total tax revenue for 2007-8 is based on taxes on items like petroleum, sugar, edible oils and packaged milk and meat, as well as other essential items which burden the poor.

No new taxes on capital gains related to real estate transactions or the stock market have been imposed. The Economic Survey admits that the top 20 per cent gets 400 per cent more than the bottom 20 per cent.

Seven, private investment and job creation merit serious allocations to infrastructure and peace. But political instability has driven away private capital. On May 12 alone, the CBR admitted to losing over three billion rupees plus worth of sales tax in Karachi.

Other factors that cripple investment include the paralysing power deficit. Today, Pakistan needs an additional 8,000-10,000MWs by 2010 to meet energy demands. The present government has not added a single MW beyond the PPP government-commissioned Ghazi Barotha (1,450MW) hydroelectric power project, which went online in 2004. More investments in coal, thermal, solar and wind energy would have added surpluses for the economy to resume its growth.

The MOU signed by the PPP government for the Thar coal project should have been revived long ago. This alone can yield 5,000MW of power and 200,000 jobs. Large scale investments in industry including foreign direct investment cannot move without cheap and reliable electricity. Job creation, the knowledge economy, higher manufacturing and exports, lower inflation and a stronger rupee, all need energy.

Eight, as the largest employer, agriculture merited policy attention. Banks and financial institutions should have been mandated to reserve a percentage of credit for farmers for buying inputs. Focus on farm to market roads, higher investments in water management and food processing units per district would boost employment and higher value addition to this sector. Despite critical desertification and dwindling glacier melt, no allocations were made for water conservation. The destitution in the rural sector should have been addressed by initiating a rural employment programme, as successfully adopted in India.

Nine, regional inequalities should have been brought down by devolving sales tax to the provinces. Today, the government’s failure to announce an NFC award before the budget has created dangerous strains in the federation.

Under the interim NFC award, the provincial share in net proceeds of the divisible pool is 42.5 per cent, while the centre retains a major chunk of resources worth 57.5 per cent. Instead of delaying the award since 2002, a fair distribution of national resources based on more than population criteria was needed.

At the same time, the natural gas and royalty formula of the 1973 Constitution should have been applied immediately in order to stabilise the pressures emanating from the NWFP and Balochistan.

Lastly, to show some commitment to the financial austerity so badly needed to curb deficits, non-development expenditures should have been slashed. But the regime’s priorities reflect no concern for public opinion or institutional accountability.President House expenditures have gone up by Rs25 million to over Rs316 million. The National Accountability Bureau, which was established to hound political rivals of the regime, has nothing to show for its lavish spending. Its expenditures, too, have gone up in this budget to an astronomical Rs2.4 million a day at Rs897 million.

In contrast, the ministry of law, justice and human rights is set to spend only Rs179 million. But then we all know how the Supreme Court Chief Justice’s extra car burdened the economy, don’t we?

The writer is a member of the National Assembly and central information secretary of the Pakistan People’s Party.

http://www.dawn.com/2007/06/23/ed.htm#4

 

[Neo]

Infrastructure-focused NWFP budget​

THE North West Frontier Province budget for financial year 2007-08, carrying an outlay of Rs114.50 billion with an ambitious Annual Development Programme (ADP) at Rs39.462 billion, follows a similar pattern to those announced earlier by the provincial government during its four-year rule.

An increase of 15-20 per cent in the wages and pensions of public sector employees, exempting widows owning three marla residential house in urban areas from property tax, inclusion of fixed-pay employees of grade 1 into Contributory Provident Fund (CPF) scheme and expansion of social safety net scheme, are the relief measures of the new budget.

In addition to these relief measures, the government seems to be focusing on investment in infrastructure with increased resources allocation as compared to the past. This is likely to benefit the stalwarts of the ruling alliance in the forthcoming general elections.

Like in the past, the NWFP government will continue to rely on external resources for its growing current expenditures and ambitious development agenda.

According to budget documents, estimated current revenue for the next financial year has been pitched at Rs80.579 billion, which is 21 per cent higher than the revised receipts of the outgoing financial year.

Of the total 80.579 billion current revenue receipts, the provincial government will receive Rs47.630 billion on account of federal divisible pool, Rs3.013 billion straight transfers, Rs11.907 billion as subvention, Rs5.807 billion as GST share for district governments and Rs6.2 billion as provincial own receipt (PoR).

An sum of Rs6 billion has been projected as receipts on head of net hydro-profit that had always been a cause of controversy and has been paid by Wapda to the province since 1991-92.

Earlier, the provincial government had been pitching the revenue receipts under this component at Rs8 billion, following a verbal commitment made by the former prime minister Mir Zafarullah Khan Jamali, for the last three years.

NWFP Finance Minister Shah Raz Khan explains: "Projection of actual receipts has been made to avoid inbuilt deficit of the budget. It doesn't mean that we have withdrawn from our principled stance rather, we are the ones who have successfully taken up the matter with the federation and Wapda through arbitration although its judgment is now pending before the Supreme Court of Pakistan."

Apart from current revenue receipts, Rs5.4 billion on account of current capital receipts, Rs6.7 billion as receipts from Account-II, and Rs16.3 billion as developmental receipts will put the overall receipts of the provincial government at Rs109 billion.

The current revenue expenditures in the next fiscal year have been put at Rs61 billion that is almost 10 per cent higher than the revised estimates of the outgoing fiscal year 2006-07.

Likewise, an amount of Rs7.2 billion, Rs39.462 billion and Rs6.844 billion has been estimated on accounts of current capital, development and Account-II expenditures. This makes the total expenditure size at Rs114.507 billion.

Apparently, the new budget is carrying a revenue shortfall of Rs5.489 billion that is 44 per cent higher than the revised budget deficit of the outgoing fiscal 2006-07.

However, assumption made on the basis of information in the budget documents suggests that the deficit is likely to exceed Rs10 billion mark because of expected lower than budgeted revenue.

The financial wizards of the MMA government believe that this deficit will be bridged through external financing which will not disturb the financial management of the province.

Critics say that it is not so easy to bridge such a huge fiscal gap sans mobilising own tax and non-tax bases of the province, whose own contribution to the revenue is just eight per cent.

MPA Pir Muhammad Khan says: “The fiscal deficit ultimately affects the budget meant for public welfare because operational expenses and salaries of employees cannot be cut. In the next fiscal year, major cuts would be levelled on such components of the budget that will affect pro-poor investment in the province."

A target of Rs6.2 billion has been set for the provincial own receipts (PoR) in the next fiscal year that is 21 per cent higher than the revised estimates of the outgoing financial year.

The NWFP government has to increase the PoR volume at 0.7 per cent of the provincial-GDP as per Medium Term Budgetary Framework (MTBF), but this target can not be achieved without streamlining the tax management and administration.

In the outgoing fiscal year the provincial government had nominally missed the PoR target, as its actual collection remained at Rs5.1 billion against the net target of Rs5.2 billion.

The tax collecting agencies consider the new recovery target unrealistic because of their limited capacity, lack of political will in expanding tax net and tax exemptions.

Out of almost 61 per cent of the revenue to be spent on non-developmental sector, Rs16.110 billion has been set aside for general administration in the next financial year against Rs13.789billion revised estimates of the outgoing fiscal year.

In terms of resource allocation, law and order has received second top priority for which Rs6.387 billion has been earmarked.

The government claims to have increased the annual allocation for the law-enforcing agencies manifold. However, if compared with the revised expenditures in the outgoing fiscal year, the law and order has got a nominal raise of just 1.38 per cent in the new budget.

MPA Bashir Ahmad Bilour, who has recently resigned from the chairmanship of NWFP standing committee on law and order, says: "The ongoing so-called war on terror has now spilled over to the settled parts of NWFP and the government cannot protect the lives and property of its citizens with such meagre resource allocations for law and order."

He also advocates sufficient allocation for health and education sectors to keep the existing assets in running condition, which according to him, have been ignored in the new budget.

The government has allocated Rs2.717 billion and Rs2.571 billion for health and education respectively.

The budget envisages an ambitious ADP worth Rs39.46 billion almost 26 per cent higher than the revised ADP of the outgoing fiscal 2006-08.

Major components of the next year ADP are: Rs21.94 billion for core provincial ADP, Rs7.98 for foreign-funded projects, Rs8.338 billion from federal government projects reflected in PSDP and Rs1.204 billion for the districts' ADP.

The next year ADP is focused on the completion of ongoing development projects particularly those initiated by the incumbent government.

The ADP fiscal 2008 is dominated by the infrastructure-related uplift schemes in education, health, water supply and communication sectors.

Will the government achieve development targets in the presence of a number of bottlenecks although its allocation for the development programme has witnessed an unprecedented increase of 44 per cent compared to the outgoing fiscal year?

MPA Anwar Kamal Marwat says that the current ADP is mainly dominated by the politically motivated projects with the ruling alliance mainly focusing on their hometowns rather distributing funds on need basis.

He believed that even with higher budgetary allocation, no significant improvement could be made in the social indicators of the province mainly because the government lacked a coherent and participative approach for the development sector.

He argues that legislators have completely been kept out of preparation process of the ADP that is why it could not really make any change in the lives of over 20 million population of the NWFP.

The government has been claiming that its spending will help generate new jobs and subsequently reduce poverty in the province, where 46 per cent of the population is living below poverty line.

Numan Wazir, President of the Industrialists Association, Peshawar, explains that tourism, mineral and hydropower generations are the avenues that can be greatly utilised for the economic uplift of the province.

He, however, laments that with allocations made in the next ADP these natural advantages could not be exploited for greater economic benefits.

http://www.dawn.com/2007/06/25/ebr9.htm